Freedom Capital Management December Market Update (Click for Full Article)
December 13, 2021
The chart above is of the Nasdaq 100 Exchange Traded Fund, Symbol “QQQ” from August 1st to today December 13th. After the 10% correction in the month of September the market has rallied back but without much progress higher. Also notice the up and down “choppy” action since November 1st. News events such as the coronavirus Omicron variant, imposed international travel restrictions, and the concerns over inflation have shaken the markets. The red line on the chart is the 50 Day moving average. Traders become defensive when the markets break their 50 averages. On December 3rd we broke that line on high volume but rallied above it the very next day. Also note that previous market resistance from September 1st is exactly where the 50 DMA is today. Many times, the previous resistance becomes the market support area. I expect the market volume to decline for the next two weeks due to reduced Holiday trading, although this week we have a FOMC meeting that always seems to rock the markets for a few days even when there is no change in the Federal Reserve rate. In fact, according to the FedWatch tool on the CME website there is a 95% chance that the FOMC will not raise rates until next year. I’d like to take a moment to wish everyone a wonderful holiday season and a very Happy and Healthy New Year!
The VIX Index closed at 27.19 last month, today it closed at 20.31. A falling VIX is normally bullish for the markets. I prefer the VIX below 20 and a VIX below 15 is even more bullish.
Percent of stocks above their 50 day and 200 day moving average: Last month 66% of stocks were above their 50-day moving average, this month 55% are above their 50-day moving average. Last month 72% of the stocks are above their 200-day moving average, today 67% are above their 200-day moving average. When 60% of stocks are above their 200-day moving average and the 50-day is rising, that is bullish. It would be a sign of strength if the stocks above their 50-day moving average begin to rise higher.
Federal Reserve: The next FOMC meeting announcement will be Wednesday December 15th. Expectations are that the Federal Reserve will not raise rates until March or May in 2022.
Unemployment Rate: Total nonfarm payroll employment rose by 210,000 in November, and the unemployment rate fell by 0.4 percentage point to 4.2 percent, the U.S. Bureau of Labor Statistics reported on December 3rd. Notable job gains occurred in professional and business services, transportation and warehousing, construction, and manufacturing. Employment in retail trade declined over the month.
Inflation Rate: The annual inflation rate for the United States is 6.8% for the 12 months ended November 2021 — the highest since June 1982 and after rising 6.2% previously, according to U.S. Labor Department data published December 10. The next inflation update is scheduled for release on January 12, 2022, at 8:30 a.m. ET. It will offer the rate of inflation over the 12 months ended December 2021.
The 10-year Treasury index yield: The rate on today is was at 1.42%, Lower than last months close at 1.55%
Trading continues to be choppy. If you have considered refinancing your home I would suggest you look into this while mortgage interest rates are still historically low.
To view past Market Newsletters, go to www.freedomcapitalmanagement.com and on the home page you will see recent newsletters and for older newsletters go to the blog page tab at the top of the home page.
In this month’s recap: Reports of a new COVID-19 variant blindsided markets as a wave of late selling erased the month’s earlier gains.
Monthly Economic Update
Presented by Guy Woolley, December 2021
U.S. Markets
Reports of a new COVID-19 variant in late November roiled markets as a wave of selling erased the month’s earlier gains.
The Dow Jones Industrial Average took the hardest hit, dropping 3.73 percent. The Standard & Poor’s 500 Index fell 0.83 percent while the Nasdaq Composite managed a small gain of 0.25 percent.1
Thanksgiving Surprise
The markets were blindsided by news over Thanksgiving Day of the emergence of a new strain of COVID-19, which led to travel bans by multiple countries and renewed unease about the prospect of a return to economic and social restrictions.
The potential global spread of this new COVID-19 variant Omicron triggered fears of another round of economic deceleration, sending investors back to their pandemic playbook of selling travel and leisure, financials, energy, and cyclicals and buying pharmaceutical companies and stay-at-home stocks.
Volatile Trading
The sharp drop on Friday, November 26, was exacerbated by reduced liquidity in the markets due to many traders being absent on this normally quiet post-holiday, shortened trading session. Stocks rebounded as traders returned to work on the following Monday but were unable to hold their gains on the month’s final trading day.
Upbeat Company Reports
The month had started off on a strong note, helped by a string of positive corporate earnings surprises, optimistic forward guidance from companies, and solid economic data. Investors were particularly encouraged by the fact that businesses had navigated the challenges of a surge in Delta variant infections in the third quarter, rising inflation, and supply chain bottlenecks.
Fed Headlines
Developments in Federal Reserve policy dominated much investor attention throughout the course of November. The first of these was the Fed announcement that it would begin its bond tapering program. Markets were unfazed by this news as they had long anticipated that the Fed would soon commence paring back its monthly bond purchases.
The second was the uncertainty surrounding whether Jerome Powell would be renominated to serve another four years as Fed chair. When President Biden finally announced his decision to renominate Powell, bond yields rose as investors became more certain that the Fed’s monetary normalization policy would proceed as planned.
Omicron Uncertainty
The consensus narrative of healthy economic expansion in 2022 was left a bit dented by the introduction of the Omicron variant. Many questions surround the new variant and its impact on global economies. Markets don’t always respond efficiently within an information void, creating the potential for further volatility until more is known about Omicron.
Sector Scorecard
Industry sector performance was mixed in November. Gains were posted in Consumer Discretionary (+3.03 percent), Consumer Staples (+1.25 percent), Materials (+1.97 percent), Real Estate (+1.21 percent), Technology (+5.33 percent), and Utilities (+1.26 percent). Losses were experienced in Communications Services (-3.06 percent), Energy (-2.73 percent), Financials (-3.40 percent), Health Care (-1.11 percent), and Industrials (-1.05 percent).2
What Investors May Be Talking About in December
In the coming weeks, markets will be sorting out news from Washington, updates on COVID variant Omicron, and economic reports.
On the economic front, investors are expected to keep a close eye on retail sales for the month of November, which are scheduled for release December 15. The November report will include the post-Thanksgiving start to the holiday shopping season and potentially be an advanced read on whether the supply chain bottlenecks might hamper holiday sales.3
Another anticipated report will be the Consumer Price Index, which will give an update on inflation trends. It’s due on December 10. If inflation continues to run hot, it may test investor confidence.4
T I P O F T H E M O N T H
Exercise is not only wise, it may also prove economical. In the long run, just keeping fit may save you thousands of dollars (or more) in medical bills that an unhealthy person may incur.
World Markets
A resurgence of Delta variant infections, spreading economic and social restrictions, and the emergence of a new COVID-19 variant sent international stocks broadly lower, with the MSCI-EAFE Index falling 3.79 percent in November.5
Major European markets dropped, with losses in Germany (-3.75 percent), the U.K. (-2.46 percent), and France (-1.60 percent).6
Pacific Rim markets also were under pressure. Hong Kong lost 7.49 percent, Japan tumbled 3.71 percent, and Australia slipped 0.92 percent.7
Indicators
Gross Domestic Product: Economic growth in the third quarter was revised slightly higher, to 2.1 percent from 2.0 percent.8
Employment: Job growth rebounded as employers added 531,000 jobs in October. The unemployment rate fell to 4.6 percent, though the labor participation rate stayed stubbornly low at 61.6 percent.9
Retail Sales: Retail sales rose 1.7 percent, exceeding expectations. This gain was, in part, attributed to higher costs and the pulling forward of holiday shopping as consumers worried about low inventory during the holiday season.10
Industrial Production: Industrial output rose 1.6 percent in October, reversing September’s slide. About half of the monthly gain was attributed to the recovery from Hurricane Ida.11
Housing: Housing starts slipped 0.7 percent in October, a surprise downturn for market watchers who had expected an increase.12
Existing home sales rose 0.8 percent, though it was off 5.8 percent from October 2020, which represents a cyclical high.13
New home sales increased 0.4 percent, though they were lower by 23.0 percent from a year earlier. The median price jumped nearly 18.0 percent year-over-year to $407,700.14
Consumer Price Index: The prices of consumer goods and services increased 0.9 percent in October and jumped by 6.2 percent year-over-year. This represented the fifth straight month of over 5 percent annualized inflation and the sharpest year-over-year increase since 1990.15
Durable Goods Orders: Orders for long-lasting goods fell 0.5 percent, the second straight month of declines. However, excluding transportation, durable goods orders increased by 0.5 percent.16
Q U O T E O F T H E M O N T H
“Create the highest, grandest vision possible for your life, because you become what you believe.”
OPRAH WINFREY
The Fed
Minutes from the November Federal Open Market Committee (FOMC) meeting showed an increasing concern over the persistence of inflation with the admission that inflationary pressures may take longer to abate than previously anticipated.
“The (Fed’s) near-term outlook for inflation was revised up, as consumer food and energy prices had risen faster than expected and production bottlenecks and recent wage gains were seen as putting somewhat greater upward pressure on prices than had been anticipated,” according to the minutes released following the Fed’s two-day meeting that ended November 3.17
Reflecting that concern, several officials suggested that the Fed’s bond tapering program may have to be accelerated in order to be ready to raise rates should inflation persist.18
| MARKET INDEX | Y-T-D CHANGE | November 2021 |
| DJIA | 12.67% | -3.73% |
| NASDAQ | 20.56% | 0.25% |
| S&P 500 | 21.59% | -0.83% |
| BOND YIELD | Y-T-D | November 2021 |
| 10 YR TREASURY | 0.52% | 1.44% |
Sources: Yahoo Finance, November 30, 2021
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury real yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.
T H E M O N T H L Y R I D D L E
You see a large truck stopped just before the underpass of a low bridge. The driver informs you that his truck is 1″ higher than the maximum clearance. This is the only road to his destination. What is the easiest way to help him get his truck through the underpass?
LAST MONTH’S RIDDLE: When can you add two to eleven and get one as the correct answer?
ANSWER: When you are figuring time. When you add two hours to eleven o’clock, you get one o’clock.
Guy Woolley may be reached at 415-236-5364 or [email protected]
www.freedomcapitalmanagement.com
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CITATIONS:
1. WSJ.com, November 30, 2021
2. SectorSpdr.com, November 30, 2021
3. Census.gov, 2021
4. BLS.gov, 2021
5. MSCI.com, November 30, 2021
6. MSCI.com, November 30, 2021
7. MSCI.com, November 30, 2021
8. CNBC. November 24, 2021
9. WSJ.com, November 5, 2021
10. CNBC.com, November 16, 2021
11. MarketWatch.com, November 16, 2021
12. CNBC.com, November 17, 2021
13. CNBC.com, November 22, 2021
14. APNews.com, November 24, 2021
15. WSJ.com, November 10, 2021
16. CNBC.com, November 24, 2021
17. FederalReserve.gov, November 24, 2021
18. WSJ.com, November 24, 2021
Guy Woolley
Registered Investment Advisor
Freedom Capital Management, Inc.
www.freedomcapitalmanagement.com
Direct: 415-236-5364
Toll Free: 866-357-2710
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