Market Commentary – November 2021

Stocks ended November generally lower, with only the Nasdaq able to eke out a gain. The Global Dow and the Russell 2000 each lost more than 4.25%. The Dow fell 3.7% and the S&P 500 dropped 0.8%. The Nasdaq gained 0.3%.  Despite some positive economic news, global and domestic markets were sent reeling in November following reports of a new coronavirus strain. The Omicron variant, first discovered in South Africa, prompted several countries, including the United States, to impose travel restrictions. Federal Reserve Chair Jerome Powell indicated that the coronavirus variant could hinder economic recovery efforts and impact the country's response to surging inflation. Nevertheless, Powell also suggested that the central bank could end its asset purchase program a few months sooner than planned, apparently signaling confidence in the economic recovery, despite concerns over the Omicron variant. Inflation continued to rise, as supply-chain bottlenecks and labor shortages prompted price hikes at both the manufacturing and retail levels.

The Omicron variant also impacted crude oil prices, driving them to the biggest monthly loss since early 2020. Prior to news of the variant, several countries, including the United States, responded to rising oil prices by planning to release of several million barrels of oil from strategic reserves. Bond prices rose sending yields lower, with 10-year Treasury yields falling 11 basis points to close the month at 1.44%.

November saw the dollar climb higher, while gold prices dropped nearly 1.0%. Prices at the pump increased, as the national average retail price for regular gasoline was $3.395 per gallon on November 22 ^nd, up from the October 25 ^th price of $3.383 per gallon.

*Chart reflects price changes, not total return

Last Month's Economic News

• Employment: The pace of job gains accelerated in October, as 531,000 new jobs were added. This followed a revised September total of 312,000 new jobs. Through the first 10 months of the year, monthly job growth has averaged 582,000. The unemployment rate declined by 0.2 percentage point to 4.6% in October. The number of unemployed persons, at 7.4 million, continued to trend down (7.7 million in September). Employment has increased by 18.2 million since a recent trough in April 2020 but is down by 4.2 million, or 2.8%, from its pre-pandemic level in February 2020. The labor force participation rate, at 61.6%, was unchanged from the September rate and has remained within a narrow range of 61.4% to 61.7% since June 2020. The employment-population ratio was 58.8% in October, up 0.1 percentage point from the previous month. This measure is up from its low of 51.3% in April 2020 but remains below the figure of 61.1% in February 2020.  In October, 3.8 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic; this is down from 5.0 million in September. Average hourly earnings rose $0.11 to $30.96 in October. Earnings have increased 4.9% since October 2020. The average work week in October was 34.7 hours, a decrease of 0.1 hour from September.
• FOMC/interest rates: The Federal Open Market Committee met in November. While the Committee left the federal funds target range rate at its current 0.00%-0.25%, it decided to begin tapering its asset purchases, reducing Treasury and mortgage-backed securities buybacks by $10 billion and $5 billion per month, respectively.
• GDP/budget: According to the second estimate from the Bureau of Economic Analysis, the economy accelerated at an annual rate of 2.1% in the third quarter after advancing 6.7% in the second quarter. Consumer spending, as measured by personal consumption expenditures, increased 1.7% in the third quarter after rising 12.0% in the prior quarter. The personal consumption price index (prices for consumer goods and services) rose 5.3% in the third quarter after climbing 6.5% in the second quarter. Excluding food and energy, the price index increased 4.5% in the third quarter compared with an increase of 6.1% in the second quarter. Overall, third-quarter GDP reflected the continued economic impact of the COVID-19 pandemic. A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. Also, government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households decreased.
• Inflation: Prices at the consumer level continued to advance in October, increasing 0.9% following a 0.4% rise in September. Prices for consumer goods and services have increased 6.2% since October 2020. Excluding food and energy, consumer prices rose 0.6% in October (0.2% in September) and 4.6% since October 2020. Prices for food rose 0.9% in October, the same increase as in September. Energy prices rose 4.8% in October (1.3% in September), while gasoline prices jumped 6.1% (1.2% in September) and fuel oil prices climbed 12.3% (3.9% in September). Prices for new vehicles and used cars and trucks rose 1.4% and 2.5%, respectively, in October.
• Producer prices continued to climb in October, increasing 0.6% after rising 0.5% in September. Producer prices increased 8.6% for the 12 months ended in October. Prices for services in October rose 0.2%, unchanged from the previous month, while prices for goods moved up 1.2% (1.3% in September). Producer prices less foods, energy, and trade services advanced 0.4% in October (0.1% in September) and have risen 6.2% since October 2020. Energy prices jumped 4.8% in October, with one-third of that advance attributable to a 6.7% jump in gasoline prices.
• Housing: Existing home sales rose 0.8% in October after advancing 7.0% in September. Nevertheless, existing home sales have dropped 5.8% from a year ago. The median existing-home price was $353,900 in October ($352,800 in September), up 13.1% from October 2020 ($313,000). Total housing inventory at the end of October dropped 0.8% from September's supply and is down 12.0% from one year ago. In October, unsold inventory sat at a 2.4-month supply at the present sales pace (2.5-month supply in September). Sales of existing single-family homes also increased in October, climbing 1.3%after climbing 7.7% in September. Year over year, sales of existing single-family homes are down 5.8%. The median existing single-family home price was $360,800 in October, up from $359,700 in September.
• New single-family home sales increased in October, advancing 0.4% after increasing 7.0% in September (revised). Despite the recent monthly increase, sales of new single-family homes have decreased 23.1% from October 2020. The median sales price of new single-family houses sold in October was $407,700 ($404,700 in September). The October average sales price was $477,800 ($457,200 in September). The inventory of new single-family homes for sale in October represents a supply of 6.3 months at the current sales pace, up from the September estimate of 6.1 months.
• Manufacturing: Industrial production rose 1.6% in October after falling 1.3% in September. About half of the gain in October reflected a recovery from the effects of Hurricane Ida. Manufacturing output increased 1.2% in October following a 0.7% decreased the previous month. The output of utilities rose 1.2% (3.7% in September), and mining output stepped up 4.1% following a 2.3% dip in September. Overall, total industrial production in October was 5.1% above its year-earlier level and at its highest reading since December 2019.
• International Markets: Fears that the economic recovery might be slowed by the spread of the Omicron coronavirus variant impacted global markets. Several countries imposed travel bans and other restrictions in response to the potentially more contagious variant. A new government took control in Germany, with Social Democrat leader Olaf Scholz succeeding Angela Merkel as chancellor. Expectations for higher U.S. interest rates pulled the Japanese yen to a three-year low versus the dollar. Relations between the United States and China remained tense over the status of Taiwan and trade issues. The Chinese real estate sector remained troubled, as high-profile developers tried to avert default on obligations to creditors. In the markets for November, the STOXX Europe 600 Index dropped 3.0%; the United Kingdom's FTSE fell 2.8%; Japan's Nikkei 225 Index dipped 5.8%; and China's Shanghai Composite Index rose 1.7%.
• Consumer Confidence: According to the latest report from The Conference Board, consumer confidence decreased in November for the fourth time in the last five months. The Consumer Confidence Index® stands at 109.5 in November, down from 111.6 in October. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, fell to 142.5 in November from 145.5 the previous month. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, registered 87.6 in November, down from 89.0 in October.

Eye on the Year Ahead

December will not only close 2021 but will likely be a precursor to what lies ahead in 2022. The Federal Open Market Committee meets mid-month and is expected to address rising inflationary pressures. The FOMC could accelerate the reduction of bond purchases and possibly consider raising interest rates sometime in 2022. Job growth accelerated in September and October, adding nearly 850,000 new jobs. November's figure is projected to be in the range of 350,000 new jobs added. Industrial production is expected to expand in November despite being hampered by supply bottlenecks and labor shortages.