Tapering, Jobs, and Omicron (December 2 Market Recap)
A possible increase in the pace of the Fed’s tapering of asset purchases, a poor jobs report, and Omicron fears all conspired to take the wind out of the market’s sails this week.
Indices
Dow 34,580 (319) or (0.91%)
Nasdaq 16,057 (496) or (3.2%)
S&P 4,697 (57) or (1.2%)
U.S. 10 Year Treasury Yield 1.367%, (12.2 bp) or (8.2%)
You Turn Me Right Round Baby Right Round
A dead cat bounce on Monday after Black Friday’s poor market showing raised hopes early this week. Those hopes were quickly dashed when Fed Chair Jerome Powell testified to Congress on Tuesday and Wednesday and admitted that he no longer considered inflation transitory and even more surprising, stated that the Fed would consider increasing the pace of reducing the Fed’s asset purchasing program considering the strength of the economy. On Tuesday, Moderna’s CEO stated that the current vaccines would likely be less effective against the new Omicron Covid variant. On Wednesday, the first case Omicron variant was discovered in the United States in California. Finally, on Friday, non-farm payrolls missed expectations considerably. All told, it was a terrible, horrible, no good, very bad week!
Something is rotten in the State of Denmark (namely the jobs report)
The November non-farm payroll number missed expectations by a huge margin on Friday, which along with the uncertainty posed by the Omicron Covid variant was enough to send traders to the exits. Only 210,000 jobs were added vs expectations of 540,000 and last month’s 573,000 additions. And yet, the unemployment rate fell from 4.6% to 4.2%. And before you say, “well then the labor participation rate must have dropped yet again,” it did not. The labor participation rate ticked up to 61.8%, a pandemic high. In addition, the ADP report on Wednesday reported 534,000 jobs added in November. While there is often a discrepancy between the ADP and Labor department numbers, the household survey conducted by the Census Bureau estimated an increase of 1.14 million jobs for the month. Expect the November non-farm payroll number to be revised higher when the December jobs report is released on Friday, January 7.
Next Week’s Data and Omicron
The economic data fireworks will not begin until Thursday with the arrival of weekly jobless claims. On Friday, inflation numbers will be delivered, and they are expected to be hot which would give additional credence to Fed hawks who desire to wrap up tapering sooner rather than later. In addition, all eyes will be on the data gathered from Omicron. In South Africa, the variant is disproportionately landing those 5 and younger into hospitals. Other data from South Africa is indicating that while cases are increasing exponentially, so far, a lower percentage of patients are on oxygen than with previous waves of the virus and 80% of hospital admissions are people younger than 50. It’s too early to make any pronouncements on this new variant but if there was any takeaway from the experience in Spring of 2020 it was to not take Covid or any new dominant variant for granted.
Market Data Points Next Week
- Monday – N/A
- Tuesday – N/A
- Wednesday – Job Openings and Labor Turnover Survey (JOLTS)
- Thursday – Initial Jobless Claims
- Friday – CPI, Core Inflation, University of Michigan Consumer Sentiment.
December 2 Market Recap Trading…
Monday– Dow +236 to 35,135, Nasdaq +291 to 15,782, S&P +60 to 4,655.
- All eleven S&P sectors traded higher today on the rebound rally. Tech, Consumer Discretionary and Utilities led the charge.
- October Pending Home Sales were gangbusters at +7.5% vs last month’s -2.4% and expectations of only a 0.7% increase.
- President Biden announced that while the Covid 19 omicron variant is concerning, that there is no need for panic and that further lockdowns and travel restrictions are not being considered at this time.
- The 10-year U.S. Treasury yield gained nearly 2.5 bp to 1.514%.
- News that Fed Chair Powell will testify to Congress tomorrow that the Omicron variant threatens the U.S. economic recovery has reversed the Dow futures which are now trading down 1.47%.
Tuesday – Dow (652) to 34,483, Nasdaq (245) to 15,537, S&P (88) to 4,567.
- A big surprise from Fed Chair Powell and negative news regarding vaccine efficacy against the omicron variant sent shares tumbling today.
- In testimony to Congress today, Fed Chair Powell suggested that increasing the pace of tapering would be discussed by the Fed during its December meeting due to the strength of the economy and inflationary pressures.
- Moderna’s (MRNA) CEO added to the market woes today when he stated that the current Covid vaccines are most likely going to be less effective against the Omicron variant of the virus.
- November Chicago PMI missed expectations as did the Consumer Confidence index but both indicators were still positive.
- Home prices were up 19.1% year over year, but this is actually a slowing in pricing for the first time since May of 2020.
- Nine of the eleven S&P sectors traded in the red today. Communication Services and Industrials were hit the hardest while Consumer Staples and Utilities were a safe haven for scared money.
- The 10-year U.S. Treasury yield traded down 8 bp to 1.443%.
Wednesday – Dow (461) to 34,022 Nasdaq (283) to 15,254, S&P (53) to 4,513.
- Markets were rallying strongly today until the CDC announced the first omicron case in the United States. Stocks sold off swiftly thereafter with all 12 S&P sectors trading in the red. Consumer Staples and Utilities were the two worst performers.
- The November ADP Private Payrolls report although lower than October’s 570,000 print, beat expectations at 534,000 vs 506,000.
- November Manufacturing numbers while strong, were a mixed bag. Markit PMI missed at 58.3 vs expectations of 59.1 while ISM PMI was in line at 61.1%.
- The 10-year U.S. Treasury yield fell 3 bp to 1.415%.
Thursday – Dow +617 to 34,639, Nasdaq +127 to 15,381, S&P +64 to 4,577.
- All eleven S&P sectors traded positively today as bargain hunters entered the markets after a week of selling. The best performing sectors were Industrials, Energy and Financials.
- Initial Jobless Claims beat expectations at 222,000 claims vs expectations of 240,000. However, this is an increase from last week’s pandemic low print of 194,000 claims.
- The 10-year U.S. Treasury yield traded up 2 bp to 1.434%.
Friday – Dow (59) to 34,580, Nasdaq (295) to 15,085, S&P (38) to 4,538.
- Eight of eleven S&P sectors traded negatively today with Consumer Discretionary, Tech and Financials the three worst performers. Only Health Care, Utilities, and Consumer Staples traded up.
- November Non-Farm Payrolls were a major disappointment at 210,000 jobs created vs expectations of 573,000 and October’s 546,000 print.
- The unemployment rate fell to 4.2% vs 4.5% expected.
- The 10-year U.S. Treasury yield declined nearly 7 bp to 1.367%
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