ECONOMIC REVIEW1
- The Consumer Price Index (CPI) for the month of December increased at a month-over-month rate of 0.5%, above the expectation of a 0.4% increase
- The Producer Price Index (PPI) for the month of December increased by 0.2%, below the consensus expectation increase of 0.4%.
- Retail sales for the month of December came in sharply below expectations, decreasing by -1.9% compared with expectations of a -0.1% decline.
INSIGHT: Data surrounding inflation was mixed for the month of December. Consumer prices increased more rapidly than prices for producers. Consumer prices continued their rapid ascent, pushing the 12-month increase for the year of 2021 to 7.0%, the highest rate in nearly 40 years. Consumer price increases for December were broad based as shelter, food, and new and used vehicles all added to overall increases. Comparatively, producer prices rose much more moderately, marking the smallest increase in nearly a year. Services were the largest contributor to gains but were mainly offset by a drop in goods prices. This drop in goods prices was the first monthly decline since 2020. Retail sales moved sharply to the downside, and though the miss was not surprising, the magnitude was. The miss can be attributed to consumers pulling their Christmas shopping forward as fear of shortages and supply issues loomed. On a brighter note, retail sales for the fourth quarter were up 2.1% compared to the third quarter and up 17.1% compared to last year.
A LOOK FORWARD1
- Housing starts for the month of December will be released on Wednesday; the expectation is for starts to decrease by -1.7% on a month-over-month basis.
- Existing home sales for the month of December will be announced on Thursday, the expectation is for home sales to decrease by -0.6% on a month-over-month basis.
INSIGHT: While housing starts are expected to decline this month, November starts accelerated well beyond expectations at a rate of 11.8%, faster also than the previous month’s revised 8.3%, reversing a two-month down trend. The expected drop following November’s surge appears in line with the volatility in the measure witnessed over 2021. The strong print last month belies a familiar headwind affecting many sectors of the economy currently: supply chain disruptions. Builders are struggling with both shortages and rising prices for materials, labor, and land, which have extended construction times across the industry. Some larger firms in the space have tempered expectations for deliveries in Q4 2021 accordingly, as well as guided down for the first quarter of this year. Despite these ongoing challenges, strong demand persists, particularly for single-family homes. While starts for the category dipped slightly from this time a year ago, the total number of single-family dwellings under construction jumped 28.3% YoY. Additionally, new home permits, a forward-looking gauge of planned construction, was up 3.6% in November over previous month’s revised figure and 0.9% from a year prior. Demand remains robust and “single-family completions will increase in 2022, bringing more inventory to market despite a 19% year-over-year rise in construction material costs and longer construction times,” said Robert Dietz, chief economist for the National Association of Home Builders.
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OBSERVATIONS
- U.S. equities moved lower this week as indicated by the S&P 500 which was down -0.29% on the week.
- In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index decreased by -0.79% on the week.
- International stocks as measured by the MSCI EAFE were positive on the week, up 0.18%, outperforming domestic stocks.
- Emerging market stocks were up on the week with the MSCI EM increasing +2.57%.
- U.S. investment grade bonds were negative last week with the Bloomberg Barclays U.S. Aggregate Bond index down -0.29%.
BY THE NUMBERS
INVEST FOR THREE YEARS - Since 1926, 84% of the rolling 3-year periods for the S&P 500 index (i.e., the 94 separate 3-years beginning 1926-28, then 1927-29, . . . 2019-21) have produced a positive return. 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).
YOU’RE HIRED - US employers added 6.45 million new jobs in 2021, an average gain of 537,000 new jobs created each month. The smallest monthly jobs gains took place in December 2021 when just 199,000 new jobs were reported. By year-end 2021, 149.0 million Americans had full-time jobs (source: Department of Labor).
POWER TO THE WORKER - Average hourly earnings of employees in the private sector rose by +4.7% in 2021, on top of a +5.5% gain in 2020. This advancement of wages during a nationwide pandemic, a 2-year average wage gain of +5.1% per year, was double the +2.5% annual gain in average hourly earnings over the preceding 13 years, i.e., 2007-2019 (source: Department of Labor).
THEY OWN IT NOW - Banks foreclosed on just 25,662 homes nationwide in 2021, down 49% from 50,238 foreclosures in 2020 and down 82% from 143,955 foreclosures in 2019. The worst single year of foreclosures in US history was 1,050,500 foreclosures in calendar year 2010 (source: ATTOM Data Solutions).
Reprinted with permission from BTN. Copyright © 2022 Michael A. Higley
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Economic Definitions
Producer Prices - PPI (headline and core): Producer prices (output) are a measure of the change in the price of goods as they leave their place of production (i.e. prices received by domestic producers for their outputs either on the domestic or foreign market).
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.
Retail Sales: Retail sales (also referred to as retail trade) tracks the resale of new and used goods to the general public, for personal or household consumption. This concept is based on the value of goods sold.
Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.
Existing Home Sales: This concept tracks the sales of previously owned homes during the reference period. Total existing home sales include single-family homes, townhomes, condominiums, and co-ops. All sales are based on closings from Multiple Listing Services. Foreclosed homes are only counted in the inventory if the bank is working with a realtor. Foreclosed homes that sell via auction (or other closings outside of the Multiple Listing Services) are not included
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.
The statements provided herein are based solely on the opinions of the Ladenburg Thalmann Asset Management (Ladenburg) Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions.
Certain information may be based on information received from sources the Ladenburg Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Ladenburg Research Team only as of the date of this document and are subject to change without notice. Ladenburg has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Ladenburg is not soliciting or recommending any action based on any information in this document.
Ladenburg is a SEC Registered Investment Adviser under the Investment Advisers Act. Ladenburg provides investment advisory services and may serve as a sub-adviser for accounts managed by third-party advisers or may be included in advisory platforms sponsored or administered by affiliates or third parties. Ladenburg does not provide tax or legal advice. Please consult your tax advisor or attorney. For additional information, please see the Program Disclosure Brochure or ADV Part II for full details, which are available upon request or please visit adviserinfo.sec.gov. 4199373
1Data Obtained from Bloomberg as of 1/14/2022
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