LSA Connect

Economic Update 12-27-2021

• Economic data during the holiday week included a slight revision upward for Q3 U.S. GDP, and a slight improvement in consumer confidence. Durable goods orders and housing metrics were mixed.

• Global equity markets gained broadly last week, as fear of the Covid omicron variant’s severity seemed to subside a bit. Bonds were mixed to lower along with higher interest rates. Commodities also fared well, particularly in oil and metals, where the demand outlook was again viewed more positively.

Economic Update 12-20-2021

• Economic data for the week included the Federal Reserve announcing a faster pace in the tapering off of bond purchases, reflecting stronger growth and inflation pressures, as seen by last week’s high PPI number. Retail sales and industrial production rose, while several regional manufacturing indexes were mixed. Housing metrics also continued to improve.
• Global equity markets fell as fears of the omicron variant and Fed tightening intensified toward the end of the week. Bonds fared well with investors avoiding risk, which pushed long-term rates lower. Commodities were mixed, with gains in metals offset by declines in energy.

Fed Note:

The Federal Reserve Open Market Committee made no changes in interest rates today, as expected, staying at the target of 0.00-0.25%.

However, in keeping with intensified market expectations in recent weeks (and signaled by the Fed itself), a key policy change was a doubling in the pace of tapering (to $30 bil./month) off of treasury and mortgage-backed bond purchases. This implies they’ll finish buying completely by early Q2 2022. The tone was a bit more hawkish than the market perhaps expected.

The formal statement language noted that a variety of sectors continue to be affected by Covid, including new variants, although job gains have been ‘solid in recent months’. Supply/demand imbalances were still noted as contributing to elevated inflation.

The dot plot seems to imply three rate moves next year, at a median rate of 0.75-1.00%. Compared to the September report, inflation forecasts have risen sharply from 4.2% to 5.3% in 2021, but only from 2.2% to 2.6% in 2022. The unemployment rate forecasts have moved in the other direction, moving lower by -0.5% this year and by -0.3% in 2022 (to a low 3.5% level). GDP expectations have fallen by -0.4% this year, with mixed results over the next several years.

Persistent inflation being no longer ‘transitory’ (per Jerome Powell’s words), has been the most important recent change in sentiment, with growing pressure to move away from accommodative policy. This also pulls the timeline for rate increases forward, from late 2022 to possibly as soon as mid-2022. This means next year could much more interesting than the last few years.

The Fed’s evaluation metrics remain mixed and heavily debated (and more fluid than usual):

Economic Update 12-13-2021

• In a lighter week for economic data, releases included consumer price inflation reaching a 40-year high, while jobs statistics continued to show improvement.

• Global equity markets rose with waning concern over the severity of the Covid omicron variant, and its potential impacts on economic growth. Bonds were mixed, with high-grade debt falling back due to rising rates, while bonds of lower credit quality fared positively. Commodities gained as crude oil prices bounced back strongly.

Economic Update 12-06-2021

• Economic data for the week included stronger manufacturing data and higher home prices, while consumer sentiment fell back a bit. The employment situation report came in far weaker than expected on a headline basis, although other data appeared more robust.

• U.S. equity markets fell back last week upon the Federal Reserve’s evolving opinion of inflation and the uncertainty surrounding the new Covid omicron variant; foreign stocks, however, fared better. Bonds gained ground in keeping with investors moving away from risky assets. Commodities lost ground, with the prices of crude oil and natural gas continuing to fall on demand concerns.

Economic Update 11-29-2021

• In a holiday-shortened week, economic data included stronger personal income and spending, as well as recovering consumer sentiment, while durable goods orders fell back. Housing data was strong in both new and existing home sales.

• Global equity markets were benign until Friday, when the emergence of a new Covid variant rattled investors. U.S. treasury bonds fared slightly positive due to flows away from risk, while credit and emerging market bonds fell back. Commodities also fell back, highlighted by a rapid correction in the price of crude oil.

Economic Update 11-22-2021

Economic data for the week included strong reports for retail sales and industrial production, as well as a re-acceleration in manufacturing indexes. Housing data was mixed, while jobless claim improvement has flattened a bit as of late.

Equity markets were mixed in the U.S., but declined throughout the rest of the world. Bonds were flattish in the U.S., but lagged globally with a stronger dollar. Commodity prices fell back as oil inventories rose.

U.S. stocks ended mixed, with the mega-cap Dow and small-cap Russell 2000 negative on the week, while the S&P 500 inched slightly positive. By sector, consumer discretionary and technology both gained a few percent on the week as essentially the only gaining sectors, due to strength in Amazon, Home Depot, and Tesla. On the downside, energy, materials, and financials fell back by several percent. Real estate was little changed on the week, in keeping with minimal changes in interest rates.

The news environment has been mixed, with decent economic data coupled with continued inflation fears and recent rise in Covid cases globally. The initial $1 tril. infrastructure bill was signed into law by the President early in the week. What’s left is the secondary social spending-focused bill now being moved from the House to the Senate. The debt ceiling is top of mind again, with a large chunk of money leaving the treasury to fund highway projects in keeping with the just-passed infrastructure bill. This leaves less in the coffers for everything else, with a projected deadline of early- to mid-December for another agreement being needed (after it was punted forward several weeks ago). While hopes are high that a showdown can be avoided, 11th hour negotiations could add volatility to markets.

Economic Update 11-15-2021

• Economic data for the week included higher ongoing readings for producer and consumer price inflation—the latter rising at the fastest year-over-year rate in three decades. The trend in improving jobless claims also slowed, and consumer confidence fell.

• Global equity markets declined in keeping with a higher U.S. inflation report, weaker sentiment, and rising foreign Covid cases. Bonds reversed course and pulled back as long-term rates ticked higher. Commodities were mixed, but energy fell back contrary to recent trends.

Economic Update 11-01-2021

• Economic data for the week included weaker-than-expected U.S. GDP growth for the third quarter, and declines in durable goods orders and pending home sales. However, home prices, new home sales, consumer confidence, and jobless claims all improved.

• Global equity markets were mixed, with gains in the U.S. offset by little change in Europe, and declines in emerging markets. Domestic bonds fared positively due to a decline in interest rates. Commodities featured little change in energy prices, and mixed results in grains and metals.

Economic Update 10-25-2021

• Economic data for the week included manufacturing indexes which leveled off a bit from highs, while on the positive side, jobless claims fell to new cyclical lows. Home sales and housing starts were mixed, with prices moving higher and inventories remaining tight.

• Global equity markets continued their positive performance, due to strong earnings results for the prior quarter. Bonds suffered, as interest rates rose again in keeping with improving conditions. Commodities were mixed, with metals falling back, while energy again experienced gains.

Economic Update 10-18-2021

• Economic data for the week included stronger-than-expected results for retail sales, while inflation continued to come in elevated for producer, consumer, and import prices. Job openings and jobless claims also continued to strengthen as labor markets show improvement.

• Global equity markets rose along with improving economic data, and inflation that came in no worse than expectations. Bonds also gained as long-term interest rates declined. Commodity prices continued to rise with prices for copper and other metals overtaking the energy story last week.

October 2021 Revision Announcement

As 2021 begins to wind down, the committee will be implementing model updates to some of the mutual fund and ETF models.  These changes will only impact the solutions listed at this time.  As bonds continue to struggle and inflation fears grow, the committee believes the updates will help with posturing of the models as the final quarter of the year plays out. Due to the recent weakness in fixed income, we will be making some changes in an effort to help models find good risk adjusted upside. Below you will find a breakdown of the upcoming changes:

The Week of October 11^th:

Posted Monday, October 11^th – Private Client Traditional and Private Client – targeted trade date – Monday, October 18^th.

Posted Tuesday, October 12^th – Private Client Blended and ETF – targeted trade date – Tuesday, October 19^h.

Posted Wednesday, October 13^th – ETF Tactical – targeted trade date – Wednesday, October 20^th.

*The mutual fund model revisions will impact the NTF models as well.

*As a reminder, the Revision Explanation Presentation/Video will be posted in the “Portfolio News,” section on each of the platform home pages.

*These are the only changes that we will be addressing at this time.

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