Week in Review: November 26, 2021

November 19, 2021

Recap & Commentary

Markets ended the week lower following Friday’s significant selloff on news of a highly mutated new strain of the coronavirus. In response to concerns about the new variant’s potential economic impact, oil fell 13%, its largest daily decline since April 2020. At the same time, demand for safe haven assets resulted in the 10-Year Treasury yield falling 0.16% to 1.48%. Stocks most leveraged to an economic recovery were particularly hard hit, falling anywhere from 6 to 11%.

Responding to the new discovery, the World Health Organization (WHO) held an emergency meeting on Friday, at which it named the new variant “Omicron” and labeled it a “virus of concern,” the same designation it originally gave to the Delta variant. Still unclear is how much more transmissible the new variant might be and the efficacy of current vaccines in warding it off. Such questions will likely take scientists several weeks to answer. Thus far, Omicron has been detected in South Africa, Israel, Hong Kong, Belgium, Italy, Germany, Britain, and Australia.

Prior to Friday’s sell off, investors had largely been focused on a raft of economic data and the White House’s decision to nominate current Federal Reserve Chair Jerome Powell for another term in leading the central bank. Investors were heartened by the news as Powell’s approach to monetary policy is widely understood by markets.

Economic Bullet Points

The Fed’s preferred measure of inflation, core personal consumption expenditures (PCE) rose 0.4% in October, in line with expectations and up from 0.2% in September. Compared to a year ago, core PCE inflation increased 4.1%, the fastest pace since January 1991.

Existing home sales increased 0.8% in October, to an annualized pace of 6.34M, ahead of the expected 6.2M. Compared to a year ago, prices rose 13.1% to $353.9K.  Supply remains extremely tight at just 2.4 months. Six months of supply is generally considered to be indicative of a balanced market.

New home sales rose for the second consecutive month to an annualized pace of 745K, the highest level since April. Sales remain hampered by shortages of construction materials and labor. Continued strong demand helped push the median price to a new record high of $407K.

Durable good orders fell 0.5% in October due to a sharp decline in aircraft orders which tend to be highly volatile. Core business spending rose 0.6%.  And in a sign that backlogs may be easing, if only slightly, unfilled orders rose just 0.2%, while shipments rose 1.5%.

Personal income rose 0.5% in October, while spending increased by a healthy 1.3%.  Higher prices accounted for approximately half of the increase. With spending outpacing incomes, the savings rate fell to 7.3%, its lowest level since December 2019.

Weekly jobless claims fell to 199K, their lowest level since 1969. While no special factors were noted, seasonal adjustments may have played a role.

Of Note

The holiday shopping season got off to a good start with Black Friday sales increasing 29.8% from last year, led by a 43% increase in in-store sales and a 10.6% increase in online sales.  Clothing sales increased 86%.

S&P 500 -2.2%
Small Caps -4.2%
Intl. Developed -3.8%
Intl. Emerging -3.6%
Commodities -2.2%
U.S. Bond Market 0.1%
10-Year Treas. Yield 1.48%
US Dollar 0.0%
WTI Oil ($/bl) $68
Gold ($/oz) $1,792

The Week Ahead

  • Nov. Employment Report
  • ISM Manufacturing
  • ISM Services
  • Consumer Confidence
  • Pending Home Sales
  • Weekly Jobless Claims

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