Market Update 1-17-2022

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The stock market has had a rough start in 2022. And this week’s economic releases added to the downward pressure: December inflation is up again, weekly jobless claims are rising, and December retail sales were down too, as interest rates have begun their rise. Get more details below for this week’s market update or listen on this week’s episode of Finance Explained.

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Last Week in the Market

It’s been a rough start to the market for 2022. Last week the stock market finished the week down -0.3%, plauged by rising energy prices, 40-year high reported inflation for December, rising interest rates, and weaker than exected jobless claims, likely due to Omicron impacts. The market is now down -2.17% year-to-date through January 14th.

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As anticipated following the Fed’s December meeting, bond yields are on the rise in 2022. The yield on 10-year treasury bonds ended the week at 1.793%, up +0.3% over just the first 2 weeks of the year.

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Only 2 market sectors are in positive territory year-to-date: energy, benefitting from rising energy prices and financials, benefitting from a rising interest rate environment. With oil future hitting 7-year highs, the energy sector is up +16.2% through January 14th, and financials are up +4.6%, while all other sector are flat to down.

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Other key economic data releases for the week included:

• Wednesday, 1/12 – December CPI
• Friday, 1/14 – December Retail Sales

We also got the usual Thursday Weekly Jobless Claims data, for the week ended January 8, 2022. More on all these stories below or get the full update on this week’s episode of Finance Explained.

December 2021 CPI: +7.0% vs. December 2020

The Bureau of Labor Statistics released the Consumer Price Index for December last week. For the month of December, the CPI increased +0.5% vs. November, and Core CPI, excluding more volatile food and energy prices, was even higher, +0.6%. Energy prices were down in December largely due to Omicron concerns and the related lockdowns around the globe, but have since continued their rise. The monthly CPI increase is 3x the monthly rate consistent with the Fed’s 2% long-run average inflation target.

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The year-over-year comparison was up +7.0% the highest increase since 1982, nearly 40 years. On an annual basis, energy remains the largest driver of inflation, with energy prices up +29.3%. Though Core CPI is elevated even absent the impact of energy prices – up +5.5% – as supply chain bottlenecks and now rising labor costs are likely playing a role.

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As a reminder, CPI is the first indictor of inflation we get each month – the Fed’s preferred measure of inflation is the PCE Price Index, which does not come out for December until January 28th. The biggest difference? The CPI is based on a fixed basket of goods and services, so tends to be slightly higher than the PCE Price Index, which is based on actual consumer expenditures so accounts for substitutions consumers may make as prices rise.

But by both measures, inflation remains elevated, and December’s data point only adds to the pressure for the Fed to raise interest rates sooner rather than later, in order to alleviate these inflationary pressures. For perspective, even if prices just stay where they are and increase no more, we would still see annual inflation numbers based on the CPI, above 2% through September 2022.

Next Data Point?
January Consumer Price Index is scheduled for release on Thursday, February 10th

December 2021 Retail Sales: -1.9% vs. November

The US Census Bureau published December Retail Sales the second week of January. And they were definitely disappointing, down -1.9% vs. November. Many attribute the decline to the impact of Omicron, supply chain bottlenecks creating inventory shortages, and that many consumers may have pulled demand forward, shopping early due to supply chain concerns.

For the month, retail sales, excluding restaurants were down -2.1%, auto sales -0.4%, grocery sales -0.5%, and restaurant sales -0.8%. It’s also important to note that these retail sales numbers are not adjusted for inflation, so absent price increases, these numbers would be down even more.

Comparisons vs. 2020 remain extreme given you are comparing current data to pre-vaccine pandemic data.

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Advanced retail sales are the earliest indicator we get each month of consumer spending. This is key to a strong economy, as consumer spending represents 2/3s of our nation’s GDP.

December numbers are concerning, particularly if they mark the continuation of a broader trend. Since April, when the last stimulus checks were sent, retail sales have essentially been flat. With the end of all federal benefits as of January 1st, including advanced child tax credit payments, consumer spending could be further impacted. I will continue to watch retail sales closely as the early indicator of consumer spending and consumer confidence.

Next Data Point?
January Retail Sales will be released February 16th

Weekly Jobless Claims for 1/8/2021: 230,000 new claims

Weekly jobless claims had been steadily and consistently marching downward… until the last few weeks.

For the week ended January 8th, new initial jobless claims were 230,000. This is an increase of 23,000 from the previous week’s level. Continued claims for the week ended January 1st decreased to 1.6 million, a decrease of 194,000 from the previous week’s revised level. This is not only the lowest level for insured unemployment since the start of the pandemic, but the lowest level reported since 1973. It represents a 1.1% insured unemployed rate, a 0.2% decrease from the week prior.

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Remember, claims data is seasonally adjusted, so should account for the normal holiday seasonality. Many attribute recent increase in weekly claims to Omicron impacts. I will continue to watch them weekly, as the closest to real-time data there is on the labor market, one of the biggest areas of concern in the current economy.

Next Data Point?
Weekly jobless claims are released by the Dept. of Labor every Thursday

Pandemic Update

The identification of Omicron the week of Thanksgiving, and it’s subsequent spread globally, has significantly changed the data points on the pandemic, for many reasons.

The spread of Omicron over the last 6 weeks has exceeded testing capabilities in many areas, making record-breaking reported cases likely an understatement of actual cases. This makes hospitalizations and deaths a more reliable indicator of the breadth of infection at this point. And while those too have seen increases, even relative to the likely understated reported case numbers, the rate of hospitalization and death associated with this Omicron wave is down significantly vs. prior variants. Hospitalizations and deaths also still remain far more prevalent in older age cohorts.

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The Federal government and states continue to urge eligible populations to get vaccinated and boosted, as vaccination does continue to be associated with lower risk of severe illness and hospitalization, and many regions hospital systems are strained given current infection rates.

One last piece of good news? Many countries are already seeing a decline in their Omicron wave, as quickly as its ascent, and the US may be starting to see a decline as well.

Next Data Point?
CDC tracks and reports pandemic data daily via the CDC Covid Data Tracker

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This week in the markets, the impact of interest rates and inflation will be further complicated by the start of Q4 earnings season. What will companies report about their outlook for 2022 earnings?

On the economic front, we will get December housing data, including starts and existing home sales. This will be interesting to track as we get closer to spring, particularly as mortgage rates have already seen singificant increases in the New Year.

• Wednesday – Existing Home Sales
• Thursday – New Home Sales

For more on the housing outlook, be sure to listen to this week’s episode of Finance Explained for a deep dive on the housing market outlook with Zillow Economist, Nichole Bachaud. Here what she has to say about her outlook for home prices, even in the face of higher interest rate, what it also means for the rental market, as well as resources Zillow offers to help you stay informed about local markets.

Questions about this week’s update or recent financial headlines? Tune in to Live Q&A with Family Finance Mom every Monday and Wednesday at 9AM ET on Instagram. Look for the question box in stories to leave your questions, or watch and ask them live.

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