Economic Update 1-18-2022

• Economic data for the week included continued historically-strong producer and consumer inflation readings, while retail sales came in weaker than expected.

• U.S. equity markets fell back last week, as investor continued to digest tighter monetary policy and the impact of the Covid omicron variant. Foreign stocks fared a bit better, due to a weaker dollar. Bonds were mixed, with lower-rated bonds outpacing investment-grade, with yields moving slightly higher. Commodities gained in keeping with a weaker dollar and rising crude oil prices.

U.S. stocks experienced a negative week on net, with ongoing concerns over inflation and higher implied interest rates. Fed Chair Powell’s testimony before the Senate Banking Committee reiterated a strong tone in using whatever tools are necessary to bring down inflation, but, at the same time, noting that pressures should be easing by mid-year and this would be a ‘long road’ to normal (including a balance sheet runoff later in 2022, contrary to concerns of it happening sooner). Growth stocks, as seen in the Nasdaq, saw the most volatility as of late (along with their higher valuations), while value stocks earned positive returns last week.

By sector, energy stocks gained over 5% in keeping with rising crude oil prices. All other sectors were in the negative, led by consumer discretionary, utilities, and financials—the latter were hurt by disappointing outlooks (although decent earnings) as the Q4 reporting season began. Real estate fell back by nearly -2%.

Foreign stocks earned slightly positive returns in developed markets, helped by a weaker dollar, while emerging markets fared best, with gains of several percent. Easing commercial and travel restrictions in some European nations appeared to help sentiment, as did stronger economic and industrial production data.

U.S. bonds were mixed, with higher interest rates causing negative returns for treasuries and investment-grade corporates, while high yield and floating rate bank loans experienced gains. Foreign developed market debt gained, with help from a weaker dollar, while emerging market bonds were mixed for the week, depending on currency exposure.

Commodities rose across the board last week, with gains in energy and metals offsetting a minor decline in agriculture. The price of crude oil rose 6% to nearly $84/barrel, with production remaining below expected levels and continued unrest in Kazakhstan, and natural gas prices up over 8% with an upcoming winter storm. The key factor in pricing since 2022 has been a steady ramping up of crude oil demand (due to rising mobility since the depths of the early 2020 part of the pandemic), while production to meet this demand has been lagging, although steadily improving, albeit at a slower rate. Some of this has been due to low capex spending, partially related to governmental disincentives for petroleum. This has kept prices elevated.

Period ending 1/14/2022	1 Week (%)	YTD (%)
DJIA	-0.88	-1.13
S&P 500	-0.29	-2.11
NASDAQ	-0.28	-4.79
Russell 2000	-0.79	-3.67
MSCI-EAFE	0.18	-0.11
MSCI-EM	2.57	2.09
Bloomberg U.S. Aggregate	-0.29	-1.82

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2021	0.06	0.73	1.26	1.52	1.90
1/7/2022	0.10	0.87	1.50	1.76	2.11
1/14/2022	0.13	0.99	1.55	1.78	2.12

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT