Week in Review: February 4, 2022
Recap & Commentary
Markets ended the week higher propelled by better than expected economic data and earnings results. Stronger growth and current expectations for four Federal Reserve rate hikes this year helped push the 10-Year Treasury yield to 1.91%, its highest level since December 2019. Oil rose to its highest level since 2014 on rising geopolitical tensions over Ukraine and expectations that increasing global demand will be met with modest supply increases. OPEC+, the global petroleum cartel, has indicated that it will only gradually increase production, while US producers are increasingly focused on profitability versus the production-growth-at-any-cost model that historically dominated the industry.
Market volatility is likely to persist in the near term as earnings season unfolds and investors await the Fed’s March meeting. Upcoming inflation readings could also increase volatility, especially should they surprise to the high side.
Through Friday, 56% of S&P 500 companies had reported earnings, with 76% beating their consensus estimate. As is often the case, earnings releases resulted in outsized price movements, both good and bad, for reporting companies. Thus far, several noteworthy stocks have experienced large post-earnings moves, including Amazon and Apple, which gained 7% and 14%, respectively, and TSLA and Meta (Facebook parent) which fell 11% and 26%, respectively. According to industry group Factset, 4Q21 aggregate earnings are expected to increase 29% from a year ago.
Economic Commentary
January’s employment report surprised to the upside as nonfarm payrolls added 467K new jobs, well in excess of the expected 150K. In addition, December’s gains were revised up from 199K to 510K. Household survey data was even stronger, showing 1.2M individuals found work in January. At the same time, 1.4M individuals joined the labor force in search of work, increasing the participation rate by 0.3% to 62.2%, the highest level since March 2020. This bodes well for employers desperately seeking to fill open positions. As a result of the number of individuals entering the labor force outpacing the number of individuals finding work, the unemployment rate rose 0.1% to 4.0%.
The December (JOLTs) report showed 10.9M jobs available at the end of December. Quits fell to 4.3M, just slightly below November’s 4.5M record high. While this current period of high employee turnover has been coined “The Great Resignation,” it has also been called “The Great Renegotiation,” which is more apt as the vast majority of people quitting their current jobs are not leaving the work force but instead pursing new jobs, often with higher salaries.
According to industry group ISM, manufacturing and services sector activity slowed slightly in January while remaining solidly in expansion territory. With respect to inflation, input prices paid by manufacturers rose in January, reversing two months of slowing price increases and suggesting that prices continue to face upward pressure.
Of Note
Meta Platforms (Facebook’s parent company) fell 26% on Thursday following the release of its 4Q21 earnings results. This equated to a loss of ~$240B in market capitalization, the single largest one-day decline on record for a US company, and more than the combined value of Ford, Target, and Chipotle.
| S&P 500 | 1.6% |
| Small Caps | 1.7% |
| Intl. Developed | 2.1% |
| Intl. Emerging | 2.5% |
| Commodities | 2.3% |
| U.S. Bond Market | -0.9% |
| 10-Year Treas. Yield | 1.91% |
| US Dollar | -1.1% |
| WTI Oil ($/bl) | $92 |
| Gold ($/oz) | $1,809 |
The Week Ahead
- Consumer Inflation (CPI)
- Consumer Sentiment
- Small Business Optimism
- Weekly Jobless Claims
