ECONOMIC REVIEW1

  • The Producer Price Index (PPI) for the month of November increased by +0.8% which was above the expected increase of +0.5%.
  • Retail sales for the month of November came in below expectations, the actual increase on a month-over-month basis was +0.3% compared to the estimate of +0.8%.
  • Housing Starts for the month of November well outpaced the estimate among economists; the actual increase was +11.8% whereas the expectation was an increase of 3.2%. 

INSIGHT: As inflationary pressures continue to persist, Chairman Jerome Powell and the Federal Reserve (the Fed) announced last week that they would double the taper of their bond buying program from $15 billion a month to the new pace of $30 billion a month. With this added information the market seems to be pricing in multiple rate hikes for 2022. However, inflationary concerns and the threat of higher rates have not yet deterred consumers, retail sales increased for the fourth month in a row on the back of strong seasonal spending. Although we received lackluster Black Friday data, this does not worry us too much as it is most likely since Americans started shopping for the holidays earlier than usual this year amid fears of supply constraints and the possibility of delays in deliveries. Housing construction saw sharp gains, posting the largest monthly gain in eight months. Increases were broad based as new construction of both single and multi-family homes posted double-digit percentage gains. 

A LOOK FORWARD1

  • The Conference Board Consumer Confidence Index will be released on Wednesday, the expectation is for the index to increase slightly to 110.8 from the previous reading of 109.5.
  • Personal Income for the month of November will be released on Thursday, economists are expecting income to increase by +0.4%, compared the previous month’s increase of +0.5%.
  • The Personal Consumption Expenditure (PCE) will be announced on Thursday, the consensus estimate is for headline PCE to increase +0.6% on a month-over-month basis. 

INSIGHT: Consumer confidence indexes can be volatile in the short term; however, they are important to look at as consumers tend to tailor their spending as it relates to their outlook of the economy. Therefore, we would expect personal spending numbers received on Thursday to trend similarly to the consumer confidence reading. The Fed signaled this week what many market participants already knew: Inflation is here to stay, at least for a while. As a result, the Fed announced plans to double the pace of tapering, which likely means the end of asset purchases by early March. Since this announcement by Chairman Powell the market has been highly volatile with multiple larger swings in either direction.
OBSERVATIONS

  • U.S. equities moved lower this week as indicated by the S&P 500 which was down -1.91% on the week.
  • In the U.S., smaller sized companies outperformed their larger-sized counterparts, as the Russell 2000 index decreased by -1.68% on the week.
  • International stocks as measured by the MSCI EAFE were negative on the week, down -0.46%, outperforming domestic stocks.
  • Emerging market stocks were negative on the week with the MSCI EM down -1.76%.
  • U.S. investment grade bonds were positive last week with the Bloomberg Barclays U.S. Aggregate Bond index up +0.35%.

BY THE NUMBERS

REALLY LOW - Inflation, as measured by the “Consumer Price Index” (CPI), was up +1.4% for 2020. For the decade of the 2010s (1/01/2010 through 12/31/2019), inflation was up just +1.8% per year, the lowest decade of inflation in the USA since the 1930s. By comparison, the decade of the 1970s (1/01/1970 through 12/31/1979) suffered +7.4% annual inflation (source: Department of Labor).

STOCKS AND HIGH INFLATION - In the last 70 years (1951-2020), inflation as measured by the “Consumer Price Index” (CPI) has been at least +5% in 12 different years, most recently in 1990. The S&P 500 has been equally split over the 12 high-inflation years, advancing in 6 years, and falling in 6 years (on a total return basis). The average return for the S&P 500 over all 12 years is a gain of just +3.2% (total return) (source: BTN Research).

PANDEMIC COST - The average cost of care for an individual infected with the COVID-19 virus who has insurance coverage and required hospitalization is $29,000. That average cost soars to $156,000 if the patient required a ventilator and needed treatment in an intensive care unit (source: FAIR Health).

WHEN WILL THEY SPEND IT? - An estimated $3.3 trillion of additional cash has been accumulated in bank accounts by American households since the beginning of the pandemic, i.e., cash that would have previously been spent (and not saved) if the pandemic had not occurred (source: Longview Economics).

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.
    Matthew J. Lawler, Financial Advisor
Securities offered through Securities America, Inc. Member FINRA/SIPC Advisory Services offered through Securities America Advisors, Inc. Matthew J. Lawler Representative  F&M Wealth Management and F&M Bank are not affiliated with the Securities America Companies May Lose Value - Not FDIC-Insured - No Bank Guarantee - Not a Deposit - Not Insured by any Government Agency
Economic Definitions

Producer Prices - PPI (headline and core): Producer prices (output) are a measure of the change in the price of goods as they leave their place of production (i.e. prices received by domestic producers for their outputs either on the domestic or foreign market).

Retail Sales: Retail sales (also referred to as retail trade) tracks the resale of new and used goods to the general public, for personal or household consumption. This concept is based on the value of goods sold.

Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.

Conference Board Consumer Confidence Index: The Consumer Confidence Survey® reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitude, buying intentions, vacation plans and consumer expectation for inflation, stock prices and interest rates. Data are data available by age, income, region, and top 8 states.

Personal Income: Consumer or Household Income (often referred to as personal income) tracks all income received by households including such things as wages and salaries, investment income, rental income, transfer payments, etc. This concept is not adjusted for inflation.

PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.

Index Definitions

S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.

Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.

MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.

MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. 
Disclosures

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Ladenburg Thalmann Asset Management (Ladenburg) Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions.

Certain information may be based on information received from sources the Ladenburg Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Ladenburg Research Team only as of the date of this document and are subject to change without notice. Ladenburg has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Ladenburg is not soliciting or recommending any action based on any information in this document.

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1Data Obtained from Bloomberg as of 12/17/2021