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Week in Review: December 3, 2021

Recap & Commentary

Markets ended the week lower as Omicron-induced volatility reigned. With the exception of Friday, the S&P 500 rose or fell by more than 1.0% each day of the week. Despite the significant volatility, the S&P 500 ended the week just 3.5% below its most recent record high set in mid-November. Investor demand for safe haven assets pushed the 10-Year Treasury yield down to 1.36%, a full 0.30% below where it stood just two days before Thanksgiving.

For many investors, the recent volatility has no doubt felt particularly jarring given the overall level of fatigue related to coronavirus and the growing hopes that the worst of the pandemic had passed. While that may still prove to be the case, Omicron is currently challenging that narrative. Additionally the general lack of volatility of late, in particular the lack of a 10% or greater pullback, which historically occurs at least annually, had likely lulled investors into a false sense of security.

Testifying before the Senate Banking Committee on Tuesday, Federal Reserve Chair Jerome Powell caused a bit of a stir when he indicated that the Fed should drop its use of the word “transitory” when describing inflation. Further, Powell stated that it may be “appropriate” to “consider wrapping up the taper of our asset purchases…a few months sooner.” Overall, Powell’s comments suggested that the Fed is growing increasingly wary of current inflation and does not want to be slow to react, something of which it has been historically accused.

Economic Bullet Points

Economic data for the week was quite robust with nearly all reports exceeding their consensus expectations.

While Nonfarm Payrolls added 210k new jobs in November, less than half the expected 550k, the unemployment rate fell 0.4% to 4.2%, a new recovery low. The disconnect stemmed from the fact that nonfarm payrolls are not used to calculating unemployment. Instead, household survey data is, which for November showed 1.14M individuals found employment. Encouragingly, the labor force participation rate improved, up 0.2% to 61.8%, a new recovery high. Compared to February 2020, participation remains down by 1.5%.

According to industry group ISM, the service sector reached a new record high in November fueled by strong business activity and new orders. With respect to inflation and supply chains, there appeared to be some signs of improvement as prices and backlog orders each eased slightly, while inventories improved to their best level since July.

ISM manufacturing data edged up slightly, aided by improvements in new orders, production, and employment. Similar to the services sector, both prices and backlog orders eased some during the month.

U.S. consumer confidence fell in November to a nine-month low on inflation concerns and to a lesser extent lingering concerns about the Delta variant.  The survey period concluded before news about Omicron emerged.

Of Note

Congress avoided a government shutdown by passing a short-term spending bill funding the government until mid-February. Congress must now address the debt ceiling to enable the government to meet its debt obligations.

S&P 500-1.2%
Small Caps-3.9%
Intl. Developed-0.5%
Intl. Emerging0.5%
Commodities-0.5%
U.S. Bond Market0.5%
10-Year Treas. Yield1.36%
US Dollar0.1%
WTI Oil ($/bl)$66
Gold ($/oz)$1,798

The Week Ahead

  • Consumer Inflation (CPI)
  • Consumer Sentiment
  • JOLTs Report
  • Trade Balance
  • Weekly Jobless Claims

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