We passed some significant hurdles this week. The Fed is reversing (lightly) their bond purchasing program by tapering their bond purchases by $15B monthly but will retain the size of their balance thereafter – not a big change which was well received by the capital markets. Also, the monthly payroll report for October showed Americans getting back to work after being on an extended pandemic relief package that expired in September. Hopefully, this will allow companies to get back to full staff in the coming months and begin to heal supply chains as shortages still exist within the economy. Earnings season is also coming to a close and most companies are making decent numbers despite the challenges in a post-pandemic economy. The uncertainty surrounding Q4 is abating and another good jobs number for this month should solidify the picture for 2022. One wildcard is inflation and its interplay with Fed policy but a recovery in the supply chain will taper shortages and put a cap on inflation – that is likely the story to watch for 2022.
The stock market is driven by liquidity these days and the Fed’s tapering policy will still leave a massive balance sheet in place to support the capital markets. Combined with a very good jobs report, the S&P continued pushing higher into the close on Friday and tagged an extension (think of it as an echo) of the corrective pullback experienced in September at 4713. The uptrend looks to be picking up pace as the Russell 2000 broke out of a nine month range this week so the growth names could carry us through the holiday season and into Q1. The next overhead extension is around 4900 in the S&P so that will be the next target if we begin to close above 4713.
Chart of the Week!
Governments in the U.S., Europe and other developed nations are embarking on a climate-change experiment: using tariffs on trade to cut carbon emissions. The idea has the potential to rewrite the rules of global commerce. Policy makers on both sides of the Atlantic are looking at targeting steel, chemicals and cement. (WSJ)
Economic & Central Banking Snippets
- We received very good jobs numbers on Friday as payrolls grew by +531k in October while the prior two months were revised up by +235k. Jobs created by private companies came in very strong at +604k while government shed 73k jobs mostly due to a decline in public education.
- The unemployment rate fell to 4.6% from 4.8%, getting closer to the 3.5% seen in February 2020.
- Average hourly earnings rose 0.4% and wages in leisure and hospitality were up 1% compared to last month.
- Unemployed people are down to 7.4mm which means the economy has added back 18.2mm jobs since the trough of the pandemic.
- Accommodation and food service employment, the category most sensitive to virus concerns, leapt 142,600 after two sluggish months. In auto manufacturing, where output has been crippled by a shortage of semiconductors, jobs climbed 27,700. (WSJ)
- Economists are forecasting that average hourly earnings rose 4.9% from a year earlier in October, a fairly robust gain that would signal employers are having to compete for workers. Separate data out this week from the National Federation of Independent Business showed that 44% of small-business owners raised compensation within the past three months, the highest share on record for a survey reaching back 48 years. (WSJ)
- The October ISM services index jumped to 66.7 from 61.9 and that was well above expectations of 62 and the highest on record. All 18 industries surveyed reported growth. (Boockvar)
- The Institute for Supply Management’s survey of purchasing managers at retailers, shippers, realtors, builders, restaurants and other service providers rose to 66.7 in October, the highest level in records tracing back to 1997. Anything above 50 indicates activity is expanding. (WSJ)
- A poor harvest of spring wheat and concern over the winter crop have pushed prices for the grain to their highest levels in years and signal more food inflation ahead. Drought across the Northern Hemisphere is the main culprit. Strong demand around the world, snarled supply lines and rising costs of farm inputs, like fertilizer and fuel, are contributing, Ryan Dezember reports. (WSJ)
- Uber revenue jumped 72% from last year. The ride hailing firm also said it posted a net loss of $2.4 billion, which it attributed to a drop in the value of its investments, including Chinese ride sharing firm Didi.
- Airbnb reported its profits shot up 280% from a year ago, posting its highest revenue and profits ever.
- Shipping company A.P. Moeller-Maersk is reaping the benefits of global supply strains that have pushed up ocean freight rates near record levels and caused backlogs at U.S. ports. The company reported a profit of $5.44 billion for the September quarter, more than five times the profit it had a year ago. Put another way, Maersk made almost as much money in three months as Amazon and United Parcel Service combined.
That is all for now and thank you for being a subscriber!
President – Kisco Capital