U.S. Markets Higher
The major equity markets finished the week higher, extending the rebound started last Friday after the averages closed lower for the first three weeks of the New Year. Following the early year sell-off that saw inflation, higher interest rates, and tighter Federal Reserve (Fed) policy weighing on investor sentiment, traders continued to pick up discounted shares this week. The energy sector continues to be a bright spot in 2022, riding the back of higher commodity prices.
International markets finished higher this week, with emerging markets (MSCI EM) outperforming their US and developed international counterparts. Emerging markets, which were last year’s regional laggard on the back of concerns over Chinese regulation and real estate debt challenges, are leading all the major market averages so far for 2022.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished lower for the third straight week. High-quality bonds continue to be challenged as traders sold off longer-term government bonds and priced in a more aggressive timetable for Fed rate hikes. This sentiment however did not carry over to high-yield corporate bonds, as tracked by the Bloomberg High Yield index, which gained ground this week.
After returning over 17% last week, natural gas pulled back over 2%. In addition, oil continues its steady march higher as we progress into February. Gold, silver, and copper finished the week in the green after finishing lower last week.
Economic Weekly Roundup
The U.S. economy added over 460,000 jobs in January, well above the consensus expectation of 125,000. The range of expectations was very wide, including calls for significant job losses, which highlights how unpredictable the economic data has been throughout the pandemic. Moreover, December’s 199,000 job number was revised much higher to over 500,000 jobs added during the month, bringing total revisions over the past two months to over 700,000 additional jobs.
Jobless Claims Decline
Initial claims for unemployment insurance declined for the week ending January 29 and were just under 240,000, surpassing economists’ consensus expectation. Continuing claims declined to under 1.63 million, which was slightly better than what economists expected. We expect claims may see further declines over the next several weeks.
US Manufacturing Slows in January
The Institute for Supply Management index of national factory activity declined to its lowest level since November 2020 on the back of COVID-19 Omicron variant cases. Nevertheless, the reading continued to signal expansion and came in above economists’ consensus expectation. The six largest manufacturing industries (machinery, food, transportation equipment, computer and electronic products, chemical products, and petroleum and coal products) all reported moderate to strong growth.
January Auto Sales
U.S. sales of light trucks and automobiles began the New Year at their fastest pace of growth since June last year, but were still below year-earlier levels. In addition, December automobile production rose for the third straight month.
The following economic data is slated to be released during the week ahead:
- Monday: December Consumer Credit
- Tuesday: National Association of Independent Business (NFIB) January Small Business Index
- Wednesday: December Wholesale Inventories
- Thursday: Weekly Initial and Continuing Unemployment Claims, January Consumer Price Index, Treasury Budget, Workweek Statistics, and Hourly Earnings
- Friday: University of Michigan February Consumer Sentiment
Next week, over 80 S&P 500 companies will report their fourth quarter 2021 earnings results.
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