Economic and Market Update - November 2021

• The U.S. Non-farm Payroll report showed 531k jobs added in October, beating estimates of 455k. This was the biggest monthly gain since July. Job gains in August and September were revised higher as well.

• President Biden has nominated Jerome Powell to serve a 2nd term as the Federal Reserve Chair and Fed Governor Lael Brainard as Vice Chair. The move was generally welcomed as it should result in less uncertainty around major changes in U.S. monetary policies. 

• Pending home sales in the U.S. rose 7.5% in October, reaching the highest level this year, indicating strong housing demand in the near-term. Homes are also still in short supply, which has kept existing home prices elevated.

• The S&P 500 experienced its worst single day return in 2021 so far on the Friday after Thanksgiving, dropping 2.27%. Concerns over the coronavirus variant Omicron mounted as the World Health Organization labeled Omicron a “variant of concern”. More data is needed to determine the efficacy of existing vaccines against the variant which should guide markets long-term.

• The news also slowed the upward pressure on yields as investors sought safety in Treasuries. The 10-year Treasury yield dropped from 1.65% to 1.48% to close the week.

• The U.S. and other countries will begin releasing oil reserves over the coming months in an attempt to combat rising energy prices; however, the initiative may be futile given OPEC+ countries’ ability to reduce their much larger share of output.

Consumer sentiment has weakened as inflation is resulting in higher prices for goods and services. Still, with an improving labor market and environment where consumers’ balance sheets are in good shape following federal stimulus, spending trends have remained strong. JPMorgan’s Chase credit and debit card data show spending through 11/24 is up 13.8% compared to last year and discretionary spending (excluding food) increased further compared to October.

The Baltic Dry Index, which measures changes in the cost of transporting various raw materials, is showing cost pressures for shipping have eased to a 5-month low. While this could be a result of improving supply chains, there is still a large hurdle in terms of turnaround times for ships to unload at West Coast ports. This is in part due to challenges in finding truckers to take the goods out of the ports, which could mean less inventories for the upcoming holiday season. 

The Omicron variant will undoubtedly capture the market’s attention in the coming weeks and months, as the Delta variant did, while facts get sorted out on Omicron’s ability to spread, how the existing vaccines may help, and ultimately how severe the symptoms may be. Investors will be focused on what has the potential to derail the economic recovery. A flare up from this variant that results in additional lockdowns, weakening labor markets, or significant changes in consumer behaviors (i.e. less consumer spending), would be detrimental to the bull market in stocks. So far, it’s too early to determine if that will be the case. Beyond virus trends, inflation and politics will be on-going considerations for the markets as well. In Washington, the decision to raise the debt-ceiling, which was delayed back in October to December 15th, is approaching and the passage of the $2T Build Back Better bill before year-end is still in question. Meanwhile, inflation data is still showing upward pressures. But until the data implies that higher prices won’t be relieved once supply chain and bottleneck issues begin to normalize or inflation hits levels that would make the Federal Reserve reduce stimulus and raise rates quicker than expected, the markets may remain insulated from inflation induced volatility. On that note, Fed Chairman Jerome Powell indicated on November 30th that inflation risks have risen and the central bank may need to consider tapering its asset purchases (Quantitative Easing) more quickly. This rattled markets, but the Fed may still lean on Omicron uncertainty as a reason to avoid tightening policy at a faster pace. Other economic data has continued to be broadly positive with labor markets, service sector, and manufacturing sector activity all posting strong results in October. We believe this should continue barring any severely negative news on Omicron. So far, leaders around the world have mostly opted against lockdown measures that would slow economic activity, but we will be monitoring the developments closely.

The purpose of the update is to share some of our current views and research. Although we make every effort to be accurate in our content, the datum is derived from other sources. While we believe these sources to be reliable, we cannot guarantee their validity. Charts and tables shown above are for informational purposes, and are not recommendations for investment in any specific security.