Last week, I talked about the January Effect, where stocks go on a tear in January.
WELP!
Markets did not exactly come storming out the gates to start the new year. This was the worst start to a new year since 2016. The Federal Reserve at its December meeting took a more hawkish position. Some members of the FOMC (Federal Open Market Committee) talked about increasing the pace of tapering and having more interest rates hikes. Since the word hawkish probably means nothing to you other than a bird, here is a definition from Investopedia:
This has led to the risk appetite of investors changing. With 10-year bond yields increasing to 1.76% (a proxy for interest rate), the highest we have seen in almost two years. Investors are looking to own less risky assets such as tech stocks. As we can see with the NASDAQ (which is heavily focused on tech) getting crushed this week. So the question is, are valuations starting to matter again?
Tale of the Tape
Jobs
The Job market is more confused than me trying to understand announcers on New York’s subway system. Seriously are they actually speaking English?
On the one hand, the unemployment rate declined more than expected from 4.2% in November to 3.9%. This is amazing considering the fact that just 21 months earlier, we had an unemployment rate close to 15%.
On the other hand, only 199,000 was added to the US economy in December which is far below the 422,000 economists were expecting. The US economy created 6.4 million more jobs in 2021, which is awesome but still 3.6 million fewer jobs than before the pandemic. So what do we make of this weird environment?
A few things:
Anyone who wants a job can get a job in the current labor market. However, a large part of the workforce is not applying for jobs. For a variety of reasons (Covid, child care, early retirement)
The worker shortage has led to historically higher wages. Average hourly earnings grew 4.7% from the previous year
Looking Ahead
Inflation
On Wednesday, the Consumer Price Index aka Inflation numbers for the month of December will be released. It is expected to have climbed from 6.8% in November to 7.1% which would be the fastest pace of inflation since 1982. This is why we are hearing the Fed get a bit more serious about increasing interest rates and tapering faster.
Quarterly Earnings
A new earnings season begins as Banks open things up this week. Banks are poised to have an excellent year if the Fed increases rates as they make a large amount of profit from making loans. The Financial Index ETF $XLF hit an All-Time High based on the news of the Fed raising rates.
Totally Unnecessary Man U Update
NO WORDS
Thank you for reading
I hope you all have A WONDERFUL WEEK. I will see you back here on Wednesday for another post. In the meantime, Go subscribe to Rambling Mind Podcast for mid-week stock market updates. You can also catch me on TikTok, Instagram, and YouTube every day.
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