Monthly Market Insights | December 2021
Reports of a new COVID-19 variant in late November roiled markets as a wave of selling erased the month’s earlier gains.
The Dow Jones Industrial Average took the hardest hit, dropping 3.73 percent. The Standard & Poor’s 500 Index fell 0.83 percent while the Nasdaq Composite managed a small gain of 0.25 percent.1
The markets were blindsided by news over Thanksgiving Day of the emergence of a new strain of COVID-19, which led to travel bans by multiple countries and renewed unease about the prospect of a return to economic and social restrictions.
The potential global spread of this new COVID-19 variant Omicron triggered fears of another round of economic deceleration, sending investors back to their pandemic playbook of selling travel and leisure, financials, energy, and cyclicals and buying pharmaceutical companies and stay-at-home stocks.
The sharp drop on Friday, November 26, was exacerbated by reduced liquidity in the markets due to many traders being absent on this normally quiet post-holiday, shortened trading session. Stocks rebounded as traders returned to work on the following Monday but were unable to hold their gains on the month’s final trading day.
Upbeat Company Reports
The month had started off on a strong note, helped by a string of positive corporate earnings surprises, optimistic forward guidance from companies, and solid economic data. Investors were particularly encouraged by the fact that businesses had navigated the challenges of a surge in Delta variant infections in the third quarter, rising inflation, and supply chain bottlenecks.
Developments in Federal Reserve policy dominated much investor attention throughout the course of November. The first of these was the Fed announcement that it would begin its bond tapering program. Markets were unfazed by this news as they had long anticipated that the Fed would soon commence paring back its monthly bond purchases.
The second was the uncertainty surrounding whether Jerome Powell would be renominated to serve another four years as Fed chair. When President Biden finally announced his decision to renominate Powell, bond yields rose as investors became more certain that the Fed’s monetary normalization policy would proceed as planned.
The consensus narrative of healthy economic expansion in 2022 was left a bit dented by the introduction of the Omicron variant. Many questions surround the new variant and its impact on global economies. Markets don’t always respond efficiently within an information void, creating the potential for further volatility until more is known about Omicron.
Industry sector performance was mixed in November. Gains were posted in Consumer Discretionary (+3.03 percent), Consumer Staples (+1.25 percent), Materials (+1.97 percent), Real Estate (+1.21 percent), Technology (+5.33 percent), and Utilities (+1.26 percent). Losses were experienced in Communications Services (-3.06 percent), Energy (-2.73 percent), Financials (-3.40 percent), Health Care (-1.11 percent), and Industrials (-1.05 percent).2
What Investors May Be Talking About in December
In the coming weeks, markets will be sorting out news from Washington, updates on COVID variant Omicron, and economic reports.
On the economic front, investors are expected to keep a close eye on retail sales for the month of November, which are scheduled for release December 15. The November report will include the post-Thanksgiving start to the holiday shopping season and potentially be an advanced read on whether the supply chain bottlenecks might hamper holiday sales.3
Another anticipated report will be the Consumer Price Index, which will give an update on inflation trends. It’s due on December 10. If inflation continues to run hot, it may test investor confidence.4
A resurgence of Delta variant infections, spreading economic and social restrictions, and the emergence of a new COVID-19 variant sent international stocks broadly lower, with the MSCI-EAFE Index falling 3.79 percent in November.5
Major European markets dropped, with losses in Germany (-3.75 percent), the U.K. (-2.46 percent), and France (-1.60 percent).6
Pacific Rim markets also were under pressure. Hong Kong lost 7.49 percent, Japan tumbled 3.71 percent, and Australia slipped 0.92 percent.7
Gross Domestic Product (GDP)
Economic growth in the third quarter was revised slightly higher, to 2.1 percent from 2.0 percent.8
Job growth rebounded as employers added 531,000 jobs in October. The unemployment rate fell to 4.6 percent, though the labor participation rate stayed stubbornly low at 61.6 percent.9
Retail sales rose 1.7 percent, exceeding expectations. This gain was, in part, attributed to higher costs and the pulling forward of holiday shopping as consumers worried about low inventory during the holiday season.10
Industrial output rose 1.6 percent in October, reversing September’s slide. About half of the monthly gain was attributed to the recovery from Hurricane Ida.11
Housing starts slipped 0.7 percent in October, a surprise downturn for market watchers who had expected an increase.12
Existing home sales rose 0.8 percent, though it was off 5.8 percent from October 2020, which represents a cyclical high.13
New home sales increased 0.4 percent, though they were lower by 23.0 percent from a year earlier. The median price jumped nearly 18.0 percent year-over-year to $407,700.14
Consumer Price Index (CPI)
The prices of consumer goods and services increased 0.9 percent in October and jumped by 6.2 percent year-over-year. This represented the fifth straight month of over 5 percent annualized inflation and the sharpest year-over-year increase since 1990.15
Durable Goods Orders
Orders for long-lasting goods fell 0.5 percent, the second straight month of declines. However, excluding transportation, durable goods orders increased by 0.5 percent.16
Minutes from the November Federal Open Market Committee (FOMC) meeting showed an increasing concern over the persistence of inflation with the admission that inflationary pressures may take longer to abate than previously anticipated.
"The (Fed’s) near-term outlook for inflation was revised up, as consumer food and energy prices had risen faster than expected and production bottlenecks and recent wage gains were seen as putting somewhat greater upward pressure on prices than had been anticipated," according to the minutes released following the Fed’s two-day meeting that ended November 3.17
Reflecting that concern, several officials suggested that the Fed’s bond tapering program may have to be accelerated in order to be ready to raise rates should inflation persist.18
By the Numbers: Candy Canes and Peppermints
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
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The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange.
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1. WSJ.com, November 30, 2021
2. SectorSpdr.com, November 30, 2021
3. Census.gov, 2021
4. BLS.gov, 2021
5. MSCI.com, November 30, 2021
6. MSCI.com, November 30, 2021
7. MSCI.com, November 30, 2021
8. CNBC. November 24, 2021
9. WSJ.com, November 5, 2021
10. CNBC.com, November 16, 2021
11. MarketWatch.com, November 16, 2021
12. CNBC.com, November 17, 2021
13. CNBC.com, November 22, 2021
14. APNews.com, November 24, 2021
15. WSJ.com, November 10, 2021
16. CNBC.com, November 24, 2021
17. FederalReserve.gov, November 24, 2021
18. WSJ.com, November 24, 2021
19. MentalFloss, December 19, 2016
20. Craves.EverybodyShops.com, December 11, 2017
21. History.com, December 7, 2018
22. Mobile-Cuisine.com, April 29, 2021