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Gradient Investments Weekly Talking Points 01/14/2022
All data is for the week ended January 14, 2022. Markets were closed January 17, 2022 in honor of the birth of Martin Luther King, Junior.
Stocks
US markets declined last week as investors turned their attention to the Federal Reserve with its plan to raise rates in the coming weeks and months. The S&P 500 declined 0.29%, the Russell 2000 dropped 0.79% and the NASDAQ was down 0.28%. Overseas markets were positive, with the developed market index (MSCI EAFE) rising 0.18% and the emerging markets (MSCI EM) up 2.58%. In the US energy and communication services were the only sectors to show gains while real estate and consumer discretionary were the poorest performers.1
Fixed Income
Representatives for the Federal Reserve have signaled that higher interest rates are in the works amid the highest inflation in nearly four decades. Interest rates rose 12 basis points for 2-year treasuries while they rose 2 basis points on the 10-years and 1 basis point on the 30-years, flattening the yield curve. The yield on the benchmark 10-year treasuries ended the week at 1.78%.1
Commodities
Oil prices continue to rise on geopolitical fears and supply constraints despite OPEC’s recent agreement to continue to increase production. The price of West Texas crude rose 6.2% to $83.80 per barrel.2
Economic Data
Consumer prices rose 0.5% in December, pushing the cost of living to a nearly 40-year high of 7.0% over the last twelve months. Oil and gas were the two leading causes of the elevated inflation rate while the price of meats declined after recent sharp increases. The core inflation rate – excluding volatile food and energy – rose 0.6% for the month and a 5.5% over the past year, a 31-year high.3
Wholesale price inflation eased dramatically to 0.2% in December, the smallest increase in over a year and below expectations of 0.4%. Wholesale prices tend to foreshadow changes in the prices that consumers pay. Particularly noteworthy was December’s decline in the cost of goods, especially energy prices and the wholesale cost of food.4
Core retail sales (excluding vehicles and gasoline) declined 2.5% in December, well below expectations for a 0.3% gain. Blame for the downward surprise was laid on the expanding Covid variants as they impact manufacturing and distribution along with accelerated inflation. Online sales declined sharply by 8.7%. For the full year, total retail sales rose 19.3%.5 US industrial production declined for the first time in three months due to slower factory production and warmer than usual temperatures led to less demand for heat from utilities. Industrial production dropped 0.1% in December although it was up 4.0% for the full quarter on an annualized basis.6
Company News7
JP Morgan Chase Inc. (JPM), a G50 holding, shares declined 5.55% last week following comments by the CEO that rising rates from the Federal Reserve may be greater than consensus expectations and pressure costs for the financial services firms.8 Quarterly earnings, however, were better than consensus expectations.9
Pacira BioSciences, Inc. (PCRX), a G33 holding, shares rose 6.75% following a preliminary report that revenues rose 26% in the fourth quarter, ahead of expectations. Sales had been pressured I the prior year due to the impact of Covid on the number of elective surgical procedures.10
Taiwan Semiconductor Co. (TSM), a G40i holding, reported quarterly sales growth of 24% and earnings growth that exceeded expectations. Management also committed to spending between $40 billion and $44 billion on new capacity to help ease the global semiconductor chip shortage and take advantage of rising demand. Shares rose 13.89% for the week.11
Did you know…
The word “sabotage” likely comes from the French or Dutch word for wooden shoe, “sabots”, which were often flung into textile mills by workers who feared the machines would put them out of work.
Mariann Montagne, CFA Portfolio Manager
Sources:
1 JP Morgan Weekly Market Recap 1-18-22
3 Bureau of Labor Statistics Consumer Prices 1-12-22
4 Bureau of Labor Statistics Producer Prices 1-13-22
6 Federal Reserve Industrial Production 1-14-22
7 All weekly changes in company stock prices: Yahoo Finance
8 Yahoo.com “Jamie Dimon Takes High View of Fed Hikes” 1-14-22
9 CNBC “JP Morgan Shares Fall 6% after CFO Lowers Guidance on Headwinds” 1-14-22
10 Pacira BioSciences press release 1-6-22
11 Taiwan Semiconductor Co. press release 1-13-22
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