Omicron and Fed Policy Worries Shake Markets… The markets sold off at the start of the week as investors worried about a global economic slowdown in the face of rising omicron infections and the effects of tighter monetary policy. Then major indexes rebounded mid-week with the S&P-500 eking out a new closing high on Thursday.
What it means— The Santa Claus rally is never a sure thing, but the odds looked pretty good this year after the swoon in late November. The omicron variant still looks milder than delta or others, but the speed of infection could cause issues for hospitals and caregivers. This has led many government officials to bring back restrictions such as vaccine mandates and crowd limits.
The moves could dampen economic activity and drive prices higher if they weigh on the supply chain. Slower growth and higher prices are two hallmarks of stagflation. We’re not likely to round it out with high unemployment, but a less accommodative Fed could drive interest rates higher, which would exacerbate the economic pain. This isn’t much of a Christmas present for investors and consumers.
With a long weekend for reflection, investors started the week optimistically. Investors are climbing a wall of worry with multiple technical indicators pointing lower for the first quarter. Professional managers have mixed views of the market’s likely direction.
November Existing-Home Sales Up 1.9%… The increase was less than expected.
What it means— Existing-home sales are down 2% from November of last year, but that’s misleading. At this time last year, homebuyers rushed in. So far this year, existing-home sales are up more than 10%. The median sale price is up 13.9% from this time last year, which is driving many would-be first-time home buyers out of the market. First-time buyers made up just
26% of purchasers last month, compared with 32% last November and the long-term average of 40%. It’s still about supply. At the current sales pace, the market has just 2.1 months’ supply. The Administration’s doubling tariffs on lumber imports will keep construction costs rising.
Headline Durable Goods Orders Up 2.5%, Excluding Transportation Orders Increased 0.8%… The increases were above expectations, which were 1.6% for headline orders and 0.6% for order excluding transportation.
What it means— We’re still buying lots of stuff that will last more than three years, like refrigerators and washing machines. The numbers would be higher if we didn’t have a computer chip shortage hampering production. With inflation running hot and stimulus funds waning, it’s not clear that high demand can last. Businesses might be showing signs of the impending slowdown. Non-defense capital orders excluding aircraft, a proxy for business spending, dipped 0.1% last month on expectations of a 0.6% gain. That’s not a big drop, but it stands out compared to the other numbers. Expect orders to fade in 2022.
New-Home Sales Jumped 12.4% Last Month to an Annualized Rate of 744,000… This was the highest sales rate since April of this year.
What it means— It’s great that we’re selling more new homes, but the current sales pace is still 100,000 below this time last year even though the median sale price is 18.8% higher at a record $416,900. At the current pace, we have more than six months’ supply of new homes. Again, that’s the right direction, but we need a lot more homes to satisfy demand. The National Association of Realtors estimates we need five million new homes immediately plus one million new homes every year.
President Biden Extends Moratorium on Student Loan Repayment from January 31 to April 30… About 36 million Americans carrying $1.37 trillion in student loans are affected.
What it means— Who needs to go through the hassle and political trouble of forgiving student loans when you simply can sign an order declaring that they don’t have to be repaid? The statement from the president spoke about the millions of student loan borrowers coping with problems from the pandemic who need more time before resuming payments. He didn’t mention the thousands of dollars in stimulus cash sent to each person, the low unemployment rate, higher wages, or the high quit rate.
Eventually, the administration will claim we can never restart payments because it might damage the economy. If only they would say the same about our income taxes. There’s no word on what the 80%+ of adult Americans without student loans, who aren’t getting special dispensation, think of the decision. It is notable that the announcement came during the very quiet week of Christmas.
Only a Few Countries Do Not Celebrate Christmas… It’s true, we don’t know when Jesus was born. The celebration of the birth of Christ was added to existing pagan celebrations in the fourth century A.D. Christmas as we know it didn’t take hold in the U.S. until the mid-1800s. It has grown into a worldwide phenomenon. According to Gallup, more than 90% of Americans celebrate the holiday with family gatherings, gift-giving, and general cheer, even though about half say they do so in a non-religious way.
Of the roughly 200 countries on the planet, fewer than 20 specifically do not celebrate Christmas. Some of those ban any mention of the holiday. Most of the non-celebrating countries, including North Korea, Brunei, Tajikistan, and Uzbekistan, don’t rank high on the list of desirable travel destinations. If trying to visit all the countries of the world is on your bucket list, make sure you don’t end up in one of these in late December. It won’t be any fun, and you might find yourself on the wrong side of the law.
Data supplied by HS Dent Research
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