Market Update 1-24-2022

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The rough start to 2022 continued for the stock market last week. What’s driving it? Rising interest rates and commodity prices, the start of Q4 earnings season, and weakening jobless claims data. We also got the start of December housing data last week too. 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

The rough start to 2022 for the stock market definitely got worse last week. Last week the stock market finished the week down -5.7%, its worst one week performance since the early days of US lockdowns in March 2020. What’s driving it? Mostly rising interest rates and the start of Q4 earnings seasons as well as early warnings from companies ahead of Q4 earnings, but we also now have the added complexity of oil prices continuing to rise in the face of rising geopolitical risk from the conflict between Russia and Ukraine.

The market is now down -7.73% year-to-date through January 21st. For those of you who may be newer to investing, or haven’t invested through market cycles before – prepare yourself for a year of higher volatility. As investor interest rate expectations meet with Fed’s actual rate increases, as inflation impacts corporate profit margins, and the huge increase in retail investors who started investing for the first time in recent years are far more skittish and run for exits at first signs of sell-offs, exacerbating volatility.

As anticipated following the Fed’s December meeting, bond yields are on the rise in 2022. The yield on 10-year treasury bonds continued it’s rise early in the week, following the December CPI release the week prior, before moderating over the rest of the week, ending the week at 1.770%, still up +0.3% over just the first 3 weeks of the year.

I’ll be watching rates closely this week as the Fed has its regularly scheduled FOMC meeting for January this week. You can see by the rising of the long-term end of the yield curve, the market fully anticipates the Fed to have at least 3 interest rate increases this year – will their press conference on Wednesday confirm those expectations?

Year-to-date, the only asset class in positive territory is Commodities (+5.9%), largely driven by rising oil prices, which are now up over 60% vs. last year and up double-digits even since just the end of 2021.

This is impacting the stock market as well, where the only sector of the market in positive territory year-to-date is Energy, up +12.5% through the end of last week. Every other sector of the stock market is in the red. Growth and tech stocks are being hit the hardest, with the Nasdaq down -12.0% for the first 3 weeks of the year. Why? A few reasons – 1) they had the furthest to fall, many companies being significant beneficiaries during the pandemic, making earnings comparisons and growth rates hard to maintain going forward and 2) they are most sensitive to increases in interest rates, given their high valuation ratios.

To better understand this relationship between the stock market, company earnings, valuation ratios and interest rates, be sure to check out 5 Factors that Drive the Stock Market.

Other key economic data releases for the week included:

• Wednesday, 1/19 – December Housing Starts (Permits & Completions too)
• Thursday, 1/20 – December Existing Home Sales

We also got the usual Thursday Weekly Jobless Claims data, for the week ended January 15, 2022, as well as weekly Fed balance sheet data (to track their progress as asset purchase tapering), and the latest on mortgage rates. More on all these stories below or get the full update on this week’s episode of Finance Explained.

December Housing Market Data: Starts Rising, Completions Lagging, Prices Still Up Double Digits

Last week we got 2 out of the 3 major monthly data releases on the Housing Market for December. On Wednesday, the US Census Bureau released its report on Monthly New Residential Construction for December 2021. This reports housing starts, housing permits and housing completions on a seasonally adjusted and annualized basis.

In terms of the housing process, permits, lead starts, lead completions. And over the last year, housing completions have fallen further and further behind, likely due to supply chain and labor constraints. For December, housing permits were up +6.5% vs. 2020, starts were up +2.5%, but completions were down, -6.6%.

Over the last year, housing starts have finally increased above long-term median levels, which is necessary to meet current elevated demands for housing as well as the overall housing shortage, a result of underbuilding ever since the end of the Great Recession. It is this under-building for the last decade or more that has created the current housing shortage and is driving double-digit home price increases.

So how is the shortage of new homes impacting the housing market as a whole? Last week, the National Association of Realtors released its Existing Home Sales report for December. Existing home sales for the month of December were 6.18 million on a seasonally adjusted annual basis, down -4.6% vs. November. However, sales for all of 2021 totaled 6.12 million, an increase of +8.5% vs. 2020, and the highest annual level since 2006, pre-Great Recession.

These high sales numbers are despite the fact that home inventory, as measured by listings, continues to fall. Listings in December were just 0.9 million homes nationwide, down -21.7% vs. 2020. For perspective, a normal housing market has 4-6 months’ worth of listings, meaning enough homes listed at a time to cover 4-6 months’ worth of home sales. Currently, listings are equivalent to just 1.8 months of sales.

This extremely limited supply, driven both by years of under construction of new homes and exacerbated by the hesitation of existing homeowners to list their home given how difficult finding a new to you home can be in the current market, continues to drive price increases.

Median home prices are up double-digits nationwide, +15.8% vs. 2020, with the South seeing the highest price increases, +20.2% vs. 2020.

Since the start of 2022, following the Fed’s announcement of accelerating asset purchase tapering and rising market interest rates, mortgage rates have begun to increase significantly. Last week, Freddie Mac’s Primary Mortgage Market Survey reported average 30-year rates of 3.56%, up +0.45% since the start of the year. While some hope this will slow home price appreciation, it’s important to note that even with recent mortgage rate increases, relative to history, rates are still near all-time lows, preserving home affordability for many families even with recent rate increases.

For more insights on the housing market, be sure to check out Is This A Good Time to Buy a House? and listen to last week’s podcast featuring Zillow Economist Nicole Bachaud sharing her insights and outlook for the 2022 housing market.

Next Data Point?
January Monthly New Residential Construction will be released on February 17th
January Existing Home Sales will be released on February 18th
Primary Mortgage Market Survey is released by Freddie Mac every Thursday

Weekly Jobless Claims for 1/15/2021: 286,000 new claims

Weekly jobless claims increased significantly last week… For the week ended January 15th, new initial jobless claims were 286,000. This is an increase of 55,000 from the previous week’s revised level (231,000). Continued claims for the week ended January 8th increased to 1.635 million, an increase of 84,000 from the previous week’s revised level. This is still a relatively low level of insured unemployment; it represents a 1.2% insured unemployed rate, a 0.1% increase from the week prior.

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.

In addition to weekly jobless claims numbers, I also wanted to share alongside this the data from the latest Census Household Pulse Survey. These are bi-weekly surveys the Census has been conducting through the pandemic to see how economic and health changes are impacting families. Over the last month, comparing survey results from the first half of December to the first half of January, there was a significant increase in children both under 5 and those ages 5-11 unable to attend school due to safety concerns, i.e. closures due to health concerns, quarantines, shift to remote learning, staffing shortages, etc. That represents 9.1 million families with children under 5 and 7.6 million families with children ages 5-11 who could not send their children to school at the start of this year.

They then asked what these parents had to do in order to care for these children. Nearly 1/3 cut hours, took sick or vacation time or unpaid leave to care for children, while another 25-30% worked while watching kids. A combined 20% quit or lost their job, while another 14% couldn’t look for a job because kids were home from school.

I share this to put data around the real-life impacts, especially for families, behind the labor force data and the pandemic. The two are intimately connected. We cannot fix the labor shortages, the supply chain bottlenecks, both of which are fueling inflation, without also acknowledging and solving the pandemic response and reliable (and affordable) childcare.

Next Data Point?
Weekly jobless claims are released by the Dept. of Labor every Thursday
Monthly Employment Situation Report is released by the Bureau of Labor Statistics the first Friday of each month

Pandemic Update

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

The spread of Omicron over the last 6-8 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.

The Federal government and states continue to urge eligible populations to get vaccinated and boosted, as vaccination does continue to be associated with a 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, while the most recent week’s worth of data is always subject to revision, the US is definitely 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, Q4 earnings season really ramps up – look for a summary of Q4 earnings results in next week’s market update, and be aware that there may be even more volatility in the market as a whole and in individual names over the next few weeks as company’s report earnings and give guidance and outlooks for 2022.

On the economic front, it’s a BIG week. The Fed will hold their regularly scheduled January FOMC Meeting to review monetary policy. We will get the final major housing market release of the month – New Home Sales – for December. We will also get the first estimate for Q4 2021 GDP, and December Income and Personal Outlays, including the PCE Price Index – the Fed’s preferred measure of inflation.

• Wednesday
  • New Home Sales (and prices)
  • Fed’s FOMC Meeting Press Conference
• Thursday
  • Weekly Jobless Claims
  • Q4 2021 GDP – 1st Estimate
  • Mortgage Rates
  • Fed Weekly Balance Sheet Update
• Friday
  • Disposable Income, Personal Outlays (aka what we spend) & PCE Price Index

For this week’s podcast deep dive, tune in to hear from One Eleven founder, Dani Pascarella. Dani and I share a common personal and professional background, which has instilled a similar passion in both of us as well – making financial literacy more accessible to everyone. Dani left her job on Wall Street to do something about it, to democratize financial education in our country by launching OneEleven. Learn exactly how their financial planning as a subscription service works, and just for Family Finance Mom followers, check out OneEleven and use code FAMILYFINANCEMOM20 for 20% off any of the membership plans available.

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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