Monday Market Update 11-15-2021
The stock market had its first down week in over a month, as inflation concerns became front and center again following the highest CPI increase in over 30 years. We also got an update on the demand side of labor – job openings – for September, and most of the rest of Q3 earnings season. What do they all tell us about the economic outlook from here? Catch all the details below for this week’s Monday market update or listen on this week’s episode of Finance Explained.
Last Week in the Market
Last week the stock market had its worst one-day performance since summer, following the release of the October CPI data on Wednesday, down -0.82%. It was more than even more strong Q3 earnings could overcome, and the market ended the week down -0.31%. It is still up 24.7% year-to-date.
The CPI report also had an impact on the bond market. The yield on 10-year Treasury bonds rose to 1.57%, as investors’ inflation concerns were renewed with vigor. These can be seen most clearly in the spread between 10-year Treasury and TIPS, or Treasury Inflation Protection Securities. The spread in rates between the two reflects investors’ expectations for inflation over the next 10 years. Historically, it has hovered at or below 2%, in-line with the Fed’s long-term inflation target. It hit the highest level since 2005 last week, ending the week with a spread of +2.72%, an increase of 18bps in just one week.
Last week, the inflation data had varying effects on different segments of the market. The S&P 500 was down -0.3% for the week, while the NASDAQ100 was down nearly a full -1%. Value stocks were up slightly, +0.1%. while growth stocks fell in line with the overall market, -0.3%. For 2021 year-to-date, the S&P 500 is up 24.7%, the Nasdaq100 is now up +25.7% for the year, while Real Estate remains the outperformer, up +31.6% year-to-date.
On Monday, President Biden will sign the $1 trillion infrastructure bill into law, while we still continue to wait on the final details on the budget reconciliation negotiations from Congress. In addition to the inflation numbers, we also got an employment market update from the employer side of the equation…
- Wednesday, 11/10 – October Consumer Price Index, an inflation indicator
- Friday, 11/12 – September JOLTS Report, a survey of employers on job openings, labor turnover and separations
We also got the usual Thursday Weekly Jobless Claims data, for the week ended November 6, 2021. More on all these stories below or get the full update on this week’s episode of Finance Explained.
October 2021 Consumer Price Index: +6.2% over the last 12 months
The economic data point most directly impacting your family finances, and financial markets, over the last year, continues to be inflation. And last week we got the first monthly economic release that tracks inflation: the consumer price index, or CPI.
For October 2021, the CPI was up +6.2% over the last 12 months, and up 0.9% vs. September. To be consistent with the Fed’s long-term goal of price stability, which they set as 2% long-run average inflation, we would have to see monthly CPI increases of no more than 0.16%. The October monthly increase is more than 5.5x that.
The largest drivers of inflation in October were food (+0.9% for the month) and energy (+4.8% for the month, +30.0% over the last 12 months).
Some continue to believe inflation is only transitory and is due to weak comparisons vs. 2020. However, whether you look at just the month-over-month comparisons or annualized comparisons to pre-pandemic prices, inflation is elevated well beyond the Fed’s 2% target. Even if prices hold at October levels and increase no more going forward, we would still see annual inflation numbers above 2% through the entire first half of 2022. That’s how much prices have have increased in just the last few months.
What does this mean for your family finances? Food, energy, and other commodities make up nearly half the weight of the consumer price index, which is supposed to represent what the average consumer household spends. Rising prices in those areas significantly impact the costs borne by your monthly budget.
Of greater concern? Shelter costs. These represent the largest component of the consumer price index (38%), and thus the largest component of most household budgets. The impact of home price increases, rising rents, as well as the potential increase in interest rates in the next two years, are not yet fully reflected in the CPI, and yet shelter prices are already up +3.5% over the last 12 months. As lease agreement renew at higher rent levels, household budgets will be stretched even more – and already are for those who have already faced lease renewals in the last month or two.
Next Data Point?
November CPI will be released Friday, December 10th
September 2021 JOLTS Report: 10.4 million job openings, 4.4 million quits
If you only look at the supply side of the labor market – covered by measures like weekly jobless claims and the unemployment rate, on the surface, you might think the labor market is in pretty good shape.
The JOLTS Report – which stands for Job Openings and Labor Turnover – represents the demand side of labor. Supply of labor is the the workers willing to work, and the demand side is employers with job openings who want to hire. And job openings remain at record levels. The September report released last week showed little change, with 10.4 million job openings remaining, again, near record levels for the data series going back to 2000.
From a demand perspective, employers have jobs to fill… the problem seems to be there aren’t any workers willing to fill them.
The tight labor market, with more job openings than workers available to fill them, is also reflected in the record high quits numbers. The JOLTS Report reports monthly job separations, broken down into quits, layoffs and other. Quits represents people voluntarily leaving their job. High quits are a sign that workers have options – quits were trending higher and elevated pre-pandemic as well, when the unemployment rate reached 50-year lows. For September, there were 4.4 million quits on a seasonally adjusted and annualized basis, equivalent to a 3.0% quits rate (quits relative to total employment). The average is historically is 1.9%. Both metrics – total quits and the quits rate – are the highest ever recorded in the history of the data series.
The tight labor market and desire by employers to both attract and retain existing workers is driving higher wages and increased benefits, which can be a good thing… but is also likely to drive further inflation in the overall economy.
You can also see the extremely elevated number of job openings in key sectors relative to February 2020, pre-pandemic, levels. Big picture, the economy today is producing as much if not more than ever before. GDP has surpassed the pre-pandemic peak. However, we are doing it with 4 million FEWER workers currently – and employers are currently trying to hire 2x as many as that!
Next Data Point?
October Job Openings and Labor Turnover report will be released Wednesday, December 8th
Weekly Jobless Claims for 11/6/2021: 267,000 new claims
Weekly jobless claims continue to fall to new post-pandemic lows.
For the week ended November 6th, new initial jobless claims were 267,000. Continued claims for the week ended October 30th, however, increased to 2.2 million, a 1.6% insured unemployed rate, unchanged from the week prior.
Next Data Point?
Weekly jobless claims are released by the Dept. of Labor every Thursday
Pandemic Update
The steady decline in cases we have seen over the last 2 months, seems to have reversed trend in recent weeks. However, cases are still down more than 50% since the peak of the Delta surge in early August, and are currently averaging around 80,000 over the last week.
Vaccinations also continue to increase, albeit more slowly than last spring, as do boosters. Currently, over 68% of the entire population have received at least 1 dose. I should also note the CDC is now also tracking and reporting booster shots, though not everyone is currently eligible for boosters.
Vaccines are also now available nationwide for children age 5-11. Early reports indicate less than 1 million children received vaccines in the first week of availability, or just 3% of the age group. This is a slower uptake than with older age groups, as many parents remain hesitant or plan to not vaccinate their children at all. A poll by the Kaiser Family Foundation found only 27% of parents were eager to vaccinate their 5-11 year olds, while 33% plan to wait, 5% will only do it if mandated, and 30% are opposed to it completely.
Next Data Point?
CDC tracks and reports pandemic data daily via the CDC Covid Data Tracker
This week in the markets, we continue to watch the progress in Congress on the Senate’s slimmed-down budget reconciliation bill, and now return attention to the looming debt ceiling deadline, which we are projected to hit the first week of December.
On the economic front, we will get October data on consumer spending and housing market…
- Tuesday – October Retail Sales
- Wednesday – October Housing Starts
- Thursday – Weekly Jobless Claims
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.