Dow rose 143, advancers over declines 5-4 but NAZ dropped 119. The MLP index was flattish in the 197s & the REIT index added 2+ to 481. Junk bond funds were little changed & Treasuries saw limited selling. Oil drifted lower in the 82s & gold was off 11 to 1816.
AMJ (Alerian MLP index tracking fund)
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Wholesale prices rose at the fastest pace on record in Dec, the latest evidence that inflationary pressures are continuing to plague the US economy. The
Labor Dept said that its producer price index, which
measures inflation at the wholesale level before it reaches consumers,
surged 9.7% in Dec from the year-ago period. It marked the highest
figure on record since the gov began tracking the data in 2010. Still,
there are some signs that inflation could be decelerating: On a monthly
basis, prices rose just 0.2% in Dec following a revised gain of 1%
in Nov. The forecast expected producer
inflation to rise by 9.8% on an annual basis & 0.4% from the previous
month. Food prices declined 0.6% in Dec after climbing 1.2%
in Nov, while energy prices dropped 3.3%, following a 2% gain the
previous month. Core inflation at the wholesale level, which excludes the more
volatile measurements of food & energy, increased 0.4% in Dec,
down from a 0.8% jump in Nov. Over the past 12 months, core prices
were up 6.9%. The surge in wholesale prices comes on the heels of a separate Labor Dept report
released a day earlier that showed consumer prices climbed 7% in
Dec from the previous year, the biggest increase since 1982,
when inflation hit 7.1%. Consumers are paying more for everyday
necessities, including groceries, gasoline & cars. The eye-popping reading – which marked the 7th consecutive month the
gauge has been above 5% – will likely amp up pressure on the Federal Reserve
to begin hiking interest rates as soon as Mar in order to combat the
recent price surge. Hiking interest rates tends to create higher rates
on consumers & business loans, which slows the economy by forcing them
to cut back on spending.
Producer prices soared by 9.7% in December, biggest gain on record
The number of Americans filing for unemployment benefits unexpectedly climbed to the highest level since mid-Nov as an unprecedented surge in COVID-19 cases driven by the highly contagious omicron variant threatened to undermine the economy's recovery. Figures by the Labor Dept show that applications for last week rose to 230K from 207K a week earlier, missing the 200K forecast. Continuing claims, the number of Americans who are consecutively receiving unemployment aid, fell to 1.56M, a decrease of 194K from the week's previous level. It marked the lowest level for continuing claims since early Mar 2020, just as the pandemic began shutting down broad swaths of the economy. The report shows that roughly 1.9M Americans were collecting jobless benefits, an increase of 226K from the previous week; by comparison, just a little over one year ago, an estimated 19.4M Americans were receiving benefits. Claims have largely moderated near pre-pandemic levels as the economy recovers & Americans continue traveling, shopping & eating out. Businesses have struggled to keep up with the demand, however & have reported difficulties in onboarding new employees. This report suggests that companies are making an effort to retain the workers they already have.
Jobless claims unexpectedly rise to 230,000 as omicron surges
Q4 earnings for the S&P 500 expected to be up 22.4%, capping off a remarkable 2021 where overall earnings will be up approximately 49% (from depressed levels the year before). Don't expect that to last. Investors will be dealing with 3 major issues that will affect corp profits: consumer demand, profit margins & Fed policy. 2 of those factors — profit margins & Fed policy — are likely to be serious headwinds. Earnings reporting season kicks of this week with a bunch of banks tomorrow. The good news is that consumer demand remains strong going into 2022. Although spending appears to have moderated a bit recently & supply chain issues will continue to surface in corp commentary, omicron is expected to slow but not derail the economic recovery. The wild card is whether the withdrawal of stimulus will cause the consumer to pull back in H2. This is the critical component of corp profitability, since it measures how much profit a company is able to retain after paying costs. S&P 500 operating margins have remained close to a record 13% thru most of 2021 because corps, while faced with higher costs, were able to raise prices. Corps may not be so successful in 2022 at maintaining those margins, even if commodity costs come down.
Profits for S&P 500 companies rose 22% in the fourth quarter, estimates show
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