Over a year ago now, I started giving my Instagram follower’s a weekly market update every Monday. They’ve grown in the content covered and the work involved to produce them through the last year… and after requests for an easier to read, save and follow format, I’m shifting their home from my Instagram stories (where they disappear after 24 hours) to my blog. For those who’ve come to rely on them, I hope you find this format an improvement to the same, fact-based, informative weekly market update content you’ve come to know and love.
Monday Market Update 01.18.2021
Last week, the S&P 500 declined 1.5%, its worst 1-week performance since October, after hitting record highs the week prior. The market continues to be volatile as the economic recovery seems to have not only stalled but begun to slide backward, as indicated by last week’s spike in weekly jobless claims, and the third consecutive month of declining retail sales in December.
Equity markets sold off last week as the reality of economic lockdowns is beginning to show up in the data. It was a busy week both in terms of economic data, as well as the start of Q4 earnings season, and the announcement of Biden’s proposed $1.9 trillion stimulus plan.
On Thursday, weekly jobless claims for the week ending 1/9 increased by 178,000 to 965,000 new claims from the week prior. Total insured unemployment, under regular state programs, is now 5.3 million people, an insured unemployment rate of 3.7% (+0.2% from the week prior). However, this is a fraction of those covered under the expanded pandemic and emergency programs at both the state and federal level. Total insured unemployment under these programs is currently 18.4 million.
The labor market continues to struggle, and the uptick in weekly claims, is a direct result of economic lockdowns due to rising cases around the country.
In other economic data last week, the Consumer Price Index increased 0.4% in December vs. November, and was up 1.4% for all of 2020. This is broadly considered to be the US metric for inflation. The CPI increase was largely driven by increases in food (+3.9% for 2020), offset by energy prices (-7.0% for 2020, driven by a more than 15% decline in commodity prices).
Recall that the Fed uses monetary policy, in particular, the overnight Federal Funds Rate to help stimulate the market. Last March, they dropped the overnight lending rate to essentially 0% in order to increase liquidity and keep banks lending through the pandemic and help support employment. They aim to keep the economy at full employment (~4% unemployment), while keeping an eye on inflation. The Fed’s long-run average goal for inflation is ~2%. Should inflation increase more substantially, they may be forced to increase interest rates before the labor market has fully recovered. To date, they have indicated no desire to raise rates any time in the next 12-24 months.
Lastly, retail sales for December were released on Friday. Sales were down -0.7% in December vs. the prior month, but up 2.9% vs. December 2019. Retail trade sales were down modestly from November, but up 2.6% from the year prior, with non-store retailers up 19.2% from 2019.
Restaurants have suffered severely from economic lockdowns. Sales at food services and drinking places were down -4.5% for the month, and -21.2% vs. 2019.
In political news, the major update is Biden’s announcement of a $1.9 trillion fiscal-stimulus plan. The plan is split roughly 50/50 between aid targeted towards households and the balance targeted towards state and local governments, as well as vaccine distribution. Included in the proposal are $1,400 direct stimulus checks and $400 incremental weekly unemployment benefits. He urges Congress to work on adopting this plan following his inauguration this Wednesday.
If adopted as proposed, this would bring total fiscal stimulus to more than $5 trillion in less than a year. You can learn more about what’s included, as well as how this compares to previous recessions and the implications going forward, in the Live Q&A replay below.
In the face of increased fiscal stimulus spending, entirely funded by additional debt issuance, we have seen treasury prices fall, and yields – the interest demanded on them – increase.
For consumers, this has also translated into an increase in mortgage rates. Last week, 30-year mortgage rates increased to 2.79%, a 14bps increase, and the largest one-week increase in well over a year. While rates continue to remain near all-time historic lows, if you are thinking of buying a new home or refinancing soon, I would keep an eye on long-term treasury rates and mortgage rates.
While the vaccine continues to be distributed and rolled out nationwide, we still have many months ahead of us of continued precautions.
While new cases daily, hospitalization and deaths remain extremely elevated, the last week has shown thing to hopefully be taking a turn for the better. The weekly moving average for new cases is down 8% vs. the week prior, and hospitalizations are down (1%) too. Deaths, however, which have about a 2-3-week lag to new infections, are still rising.
The vaccine rollout continues. Bloomberg is tracking the rollout and administration state by state. We saw a 40% increase in vaccines distributed and a 70% increase in vaccines administered last week relative to the week prior. So far, 1.76 million people have completed their double dose regimen, representing just 0.1% of the population.
The Week Ahead
Look for updates on Initial Jobless Claims and 30-Year Mortgage Rates every week. The biggest news coming up this week is the inauguration on Wednesday. Biden will officially take over as President effective noon on Wednesday.
This week, we will also get updates on the housing market, including new housing starts, existing home sales, and housing supply numbers. It is also the thick of earnings season, so you may see volatility in individual names as they report Q4 earnings results.
For More Information…
For a more detailed history of all the metics shared, check out When Will the Economy Recover – updated monthly, which gives a more detailed overview of market and economic indicators, as well as their historical context.
Questions? Feel free to leave them in the comments below, or in the weekly question box in my Instagram stories.