Market In A Snap! November 29th-December 3rd, 2021

By: Jeff Anderson, CFA

This Week: The S&P 500 closed on Friday at 4,538, posting a loss of 1.2% for the week.  Despite the recent market weakness, the S&P 500 is still up over 20% for the year.  The market correction drove Treasury bond yields lower, with the 10-yr Treasury Bond yield settling below 1.36%.  Crude oil, on the other hand, has been very weak, settling 2.6% lower for the week but down a whopping 18% since Wednesday.  OPEC’s decision to hike output, the Omicron variant’s effects on economic activity and President Joe Biden’s announcement that the government will release supply from the Strategic Petroleum Reserve all contributed to the fall in the price of oil.   Overall, inflationary pressures subsided this week, despite Fed Governor Jerome Powell acknowledging that certain supply-chain pressures are taking longer to work through.  He even went so far as to remove the word “transitory” stating that the term means different things to different people.   Transitory doesn’t have a definite timeline; it simply means that certain costs pressures are not expected to reach a higher, permanent plateau.

This Issue:

  • Market Update
  • Investors Poured Record Amounts of Money Into Equities in 2021
  • The U.S. Added “Just” 210,000 Jobs in November
  • U.S. Businesses Posted Their Highest Profit Margins Since 1950

Investors Poured Record Amounts of money into equities in 2021

Bloomberg reported on November 25th that this year’s inflows into equities are the largest rolling 12-month amount over the past 19 years, amounting to almost $900 billion. Bonds took in a little over half that amount.    

U.S. Added “Just” 210,000 Jobs in November

Friday’s unemployment numbers were somewhat disappointing, but that doesn’t tell the whole story. Prior month’s numbers are always adjusted, making each report somewhat inaccurate.  Nonetheless, economists had predicted over 500,000.  We are not back to pre-pandemic employment numbers, but the economy is continuing to add jobs.  Unemployment is down to 4.2%.  the Labor Participation rate is slightly higher, meaning more people are in or actively looking for work.  The chart breaks down employment by sector.  Leisure and hospitality are lagging but that’s where the largest wage gains have come from.  According to the Wall Street Journal, a “survey showed that 1.1 million more people were employed in November than in October.”  Chief economist at Jefferies LLC., Aneta Markowska, said the November payrolls figures “doesn’t really change what we thought about the labor market.  It’s still very healthy and moving toward maximum employment very quickly.”

U.S. Businesses Posted Their Highest Profit Margins Since 1950

Despite the rhetoric we’re hearing from CEOs about wage inflation, corporations are doing better than OK.  A Bloomberg article earlier in the week that “US corporations outside of the finance industry posted their fattest margins since 1950 – one reason why stock markets keep hitting all-time highs.” Businesses have been paying more in wages and benefits, with “total compensation up 12% in the last quarter from a year earlier.”  At least for now, employees and employers are benefiting from higher prices.  Since labor expenses make up a considerable amount of a business’s overall costs, their ability to pass these costs along to consumers is paramount in keeping profit margins healthy and growing.  With capitalism being a force of creative destruction, we should see businesses increase their investments in technology to drive higher labor productivity, which may ultimately lead to less of a reliance on human capital.   The make up of the US labor force in 10 years from may will likely look vastly different than today.

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