Market View Weekly

 
ECONOMIC REVIEW1
 
  • The ISM Manufacturing Index for the month of November increased from 60.8 to 61.1 which was slightly below the estimate of 61.2.
  • The ISM Non-Manufacturing Index increased to 69.1 in November, beating economists’ expectations which called for a decline from the prior month to 65.0.
  • The change in non-farm payrolls for the month of November came in well below expectations; the actual increase was 210,000 while economists called for an increase of 550,000. 
 
INSIGHT: The manufacturing sector continued to expand in November, with thirteen of eighteen industries reporting growth. What is even more promising is that although these measures are continuing to hit record highs, survey responses continue to highlight the unique circumstances and challenges the current supply chain is causing. This should mean that there will be ample momentum for these indicators to move even higher when supply chain issues reside. On the other hand, the jobs report showed that the U.S. economy added much fewer jobs than economists expected. However, looking under the hood of the report, this may be more of a mixed result than purely negative as the survey of households painted a more optimistic jobs picture, indicating an employment gain of 594,000 for the month. The Labor Force Participation ratio increased to 61.8% which is also the highest number since March of 2020, however the labor force is still trailing February 2020 numbers by about 2.4 million workers. 
 
A LOOK FORWARD1
 
  • The Job Openings and Labor Turnover Survey (JOLTS) for the month of October will be announced on Wednesday; the expectation is 10.6 million job openings compared to the previous reading of 10.438 million openings.
  • The Consumer Price Index (CPI) for the month of November will be released on Friday; the estimate among economists is an increase of 0.7% on a month-over-month basis. The year-over-year estimate is 6.7%.
  • The University of Michigan Consumer Sentiment Index for the month of December will be released on Friday; the consensus expectation is for the survey to increase from 67.4 to 68.0.
 
INSIGHT: After coming off its highest reading since the ISM institute began recording the metric in 1997, it is no surprise to see the services index expected to retreat slightly for the month of November. However, any time the index yields over the number 50 this indicates an expansionary trend. An interesting point to look at over the next few weeks is the impact of the newly discovered COVID-19 variant in South Africa. The variant has already caused a few European countries and Asian countries to implement new restrictions. The effects remain to be seen for the United States manufacturing and services sectors. On a more positive note, the labor market looks to build upon a strong hiring pace in October. With initial jobless claims falling to a 52 year low and more open jobs than there are unemployed individuals, we would expect to see a drop in the unemployment rate in November.
 
OBSERVATIONS
 
  • U.S. equities moved lower this week as indicated by the S&P 500 which was down -1.17% on the week.
  • In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index decreased by -3.82% on the week.
  • International stocks as measured by the MSCI EAFE were positive on the week, up +0.19%, outperforming domestic stocks.
  • Emerging market stocks were positive on the week with the MSCI EM up +0.52%.
  • U.S. investment grade bonds were positive last week with the Bloomberg Barclays U.S. Aggregate Bond index up +0.63%.
 
BY THE NUMBERS
 
NOT A NORMAL YEAR - Over the last 12 months, i.e., 12/03/20 to last Friday 12/03/21, the S&P 500 has gained +25.6% (total return) and set 71 all-time closing highs. The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BTN Research).
 
FED JOBS - With the resignation of Randal Quarles at the end of 2021 and the expiration of Richard Clarida’s term on 1/31/22, the Fed’s 7-member Board of Governors will have 3 vacancies. President Biden has pledged to “bring new perspectives and new voices” to the Fed board (source: Federal Reserve). WONDER WHY? - 27.1 million Americans moved in the last year, 8.4% of the US population. That’s the lowest percentage of Americans who reported living at a different residence in an annual survey conducted since 1948. 25 years ago (1996), 16.3% of Americans moved in the prior 12 months (source: Census Bureau).
 
EVERY DAY - An estimated 11,050 Americans will turn 65 years old each day next year (2022), i.e., 1 every 8 seconds. This group represents the 12th year of 19 years of “Baby Boomers” turning age 65. An estimated 11,525 Americans will turn 65 years old each day in the year 2029 (source: Government Accountability Office).
 
Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.
Economic Definitions
 
Nonfarm Payrolls: This indicator measures the number of employees on business payrolls. It is also sometimes referred to as establishment survey employment to distinguish it from the household survey measure of employment.
 
ISM Services Index: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc. Target Audience: supply management professionals Sample Size: 300 individuals Date of Survey: through the month The Services Index is a composite index of four indicators with equal weights: Business Activity, New Orders, Employment and Supplier Deliveries. An index reading above 50% indicates an expansion and below 50% indicates a decline in the non-manufacturing economy. Whereas per Supplier Deliveries Index, above 50% indicates slower deliveries and below 50% indicates faster deliveries.
 
ISM Manufacturing Index: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc.
 
Job Openings – JOLTS: This concept tracks the number of specific job openings in an economy. Job vacancies generally include either newly created or unoccupied positions (or those that are about to become vacant) where an employer is taking specific actions to fill these positions.
 
CPI (headline and core): Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.
 
University of Michigan Consumer Sentiment Index: Consumer confidence tracks sentiment among households or consumers. The results are based on surveys conducted among a random sample of households. Target Audience: representative sample of US households (excluding Alaska and Hawaii). Surveys of Consumers collects data on consumer attitudes and expectations summarized in the Consumer Sentiment, to determine the changes in consumers' willingness to buy and to predict their subsequent discretionary expenditures. This Index is comprised of measures of attitudes toward personal finances, general business conditions, and market conditions or prices. Components of the Index of Consumer Sentiment are included in the Leading Indicator Composite Index. Unit: Index (Q1 1966=100)
 
Index Definitions
 
S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
 
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
 
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
 
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
 
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
 
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
 
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
 
Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
 
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
 
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. 
Disclosures
 
Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.
 
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
 
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1Data Obtained from Bloomberg as of  12/03/2021