Dow soared 622, advancers over decliners about 3-1 & NAZ went up only 32. The MLP index added 1+ to the 173s & the REIT index shot up 9+ to the 482s. Junk bond funds crawled higher & Treasuries were sold while stocks rallied. Oil gained 1+ to 68 & gold slid back 5 to 1778.
AMJ (Alerian MLP index tracking fund)
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Economists surveyed by the National Association for Business Economics (NABE) are predicting that annual inflation will remain above 2% over the next 3 years as a result of rising wages & strong demand for goods & services. NABE
panelists project that the overall consumer price index will rise 6%
year-over-year in Q4, compared to Sep's
forecast of 5.1%. CPI inflation is expected to remain elevated by the
end of 2022 at 2.8% year-over-year, compared to Sep's forecast of
2.4%. The core PCE price index, which excludes food & energy,
is expected to rise 4.1% year-over-year in Q4, compared
to Sep's 3.8% forecast & slow to a 2.6% year-over-year rate in
Q4-2022. About 71% of NABE respondents
anticipate the core PCE gauge will not decline to or below the Federal
Reserve's 2% target until H2-2023 or later. Approximately 87% of panelists said ongoing supply chain bottlenecks
have been the key driver for higher prices, while 76% attributed recent
price increases to strong demand & 69% cited rising wages. 51% of respondents said elevated demand for housing is an important
component fueling inflation, with 60% anticipating the
shelter component of the consumer price index (CPI) will rise at an
annual rate of 3-5% by the end of 2022. Easing
of supply chain bottlenecks, increased energy production, less monetary
policy stimulus & increased semiconductor chip production were all
seen as the top factors that could help dampen inflation ahead. About
43% of respondents anticipate that supply chain disruptions will ease in
Q2-2022, compared to 37% who believe easing has
already begun or will do so by Q1-2022. The
majority (58%) of panelists anticipate that the supply of goods will
begin normalizing in H1-2022, while 17% expect the supply
of goods to begin normalizing in H2-2022. 22% of participants believe the process has already started or will
start before the end of 2021.
Economists dial up inflation targets amid rising wages, strong consumer demand: NABE
A major shift is underway at the Federal Reserve to begin to remove the central bank's massive pandemic easing policies, & could see it hike rates sooner than is priced in by markets. Comments by Fed officials suggest the central bank is likely to decide to double the pace of its taper to $30B a month at its Dec meeting next week. Initial discussions could also begin as soon as the Dec meeting about when to raise interest rates & by how much next year with Fed officials set to submit a fresh round of economic forecasts & projections for the fed funds rate. There is no consensus yet on when to begin hikes, but it’s clear that the faster taper is designed to give the Fed flexibility to raise rates as soon as the spring. The markets do not appear to expect the first rate hike until the summer. St Louis Fed Pres James Bullard said he wants asset purchases to end in Q1 so the Fed can position itself “soon” & make every meeting “live” for a possible rate hike. Several other officials have now spoken openly about the chance for multiple rate hikes next year & the potential need to raise rates to combat inflation. Fed Chair Jerome Powell in testimony last week supported the idea of a faster taper & made a dramatic shift when he said the big concern with another wave of the coronavirus or new variant was inflation, because it might keep people out of work & worsen supply constraints. It was a big change for Powell & the Fed since previous virus waves have mostly raised worries about weak demand, not tight supply. Until the taper was announced in Nov, Fed officials were mostly silent about the rate outlook. Economic data in Nov played a big role in the Fed's shift. The consumer price index showed higher & more widespread inflation. That added to concern of how higher housing prices might drive up the CPI in coming months. The jobs report in Nov showed strong payroll growth, but few workers coming off the sidelines & back into the job market. The progress in Dec, with labor force growth of about 600K, appeared to do little to change the outlook for a tight job market.
A shift is underway at the Fed that could see a speedier end to easy policies
Preliminary data about the severity of the Covid micron variant is “a bit encouraging,” the White House's chief medical advisor, Dr Anthony Fauci, said, following early figures from South Africa that suggest it may not be as bad as initially feared. However, Fauci cautioned that more data was needed to draw a complete picture of omicron's risk profile. The World Health Organization said the variant was “of concern” on Nov 26, prompting a flurry of intl travel bans & new Covid restrictions. “Clearly, in South Africa, omicron has a transmission advantage,” Fauci added that “although it’s too early to make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it.” “But we’ve really got to be careful before we make any determinations that it is less severe, or really doesn’t cause any severe illness comparable to delta, but thus far the signals are a bit encouraging regarding the severity,” Fauci continued. At least 15 states have detected the omicron variant, as of yesterday & that number is expected to rise, Centers for Disease Control & Prevention Director Dr Rochelle Walensky said. It comes as South Africa sees a rise in Covid cases attributed to the omicron variant, as well as an uptick in hospitalizations. Given the ongoing uncertainty surrounding the Covid omicron variant, experts are watching the real-world data coming out of South Africa closely. A report from the South African Medical Research Council, released Sat suggests that the strain could cause a milder infection. It's too early to tell whether it poses a greater risk of death, however, given the relatively small amount of data & how recently the variant was detected. The report also revealed that more younger people were being admitted to the hospital with Covid omicron infections, but this could be related to lower rates of vaccination among such age groups in South Africa.
First data on Covid omicron variant’s severity is ‘encouraging,’ Fauci says Investors
Investors are encouraged by the somewhat encouraging assessment about the omicron risk & paying less attention to inflation concerns. After recent selling (see the chart below), bargain hunters are attracted to stocks today. However, the advance-decline ratio is a little weak.
Dow Jones Industrials
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