Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a House Financial Committee hearing in Washington, D.C., on Wednesday, Dec. 1, 2021.
Al Drago | Bloomberg | Getty Images
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The S&P 500 rebounded this week as we received encouraging updates on the omicron variant, including indications that symptoms may be less severe than the delta variant and that a three-dose vaccine regimen could be an adequate defense against the risk of severe cases.
On the economic front, while the market initially pulled back last week after Fed Chair Jerome Powell got more hawkish around inflation (recall, Powell previously opted to retire the term “transitory”), the change in stance helped us digest one of the hottest CPI readings on record on Friday. We’ll know more about how the Fed is thinking about tapering, tightening, and inflation next week following the conclusion of the December FOMC meeting.
Under the hood this week, all sectors closed in the black, with tech and energy leading the charge while utilities and consumer discretionary were the relative laggards, though both finished up over 2.5% for the week.
Our strategy:
What we learned this week:
Here is a quick look at some of the broader market measures we like to keep an eye on: The dollar index held around the 96 level. Gold hovered just below the $1,800 level. WTI crude prices rebounded to the low-$70s region. And the yield on the 10-year Treasury increased to about 1.47% level.
Within the portfolio, Broadcom (AVGO) and Costco (COST) reported earnings. (You can read our updates of those companies here and here.)
In addition to earnings, while it was a relatively light week on the macroeconomic front, we did receive a key reading on inflationary in the form of the Consumer Price Index (CPI).
However, before getting to CPI, the U.S. Department of Labor reported on Thursday that in the week ending Dec. 4, initial jobless claims were 184,000, representing a weekly decrease of 43,000, and well below estimates for 220,000. The prior week’s reading was revised up to 227,000, up from 222,000 previously reported.
Importantly, the four-week moving average, used to smooth out weekly volatility, came in at 218,750, representing a decline of 21,250 from the previous week’s revised average of 240,000 (revised up from 238,750 previously reported). This represents the lowest level for the moving average since March 7, 2020 when it was 215,250.
On Friday, the Bureau of Labor Statistics released CPI data, which measures the price to consumers for a basket of goods and is therefore used as one measure of inflation. On a seasonally adjusted basis, the headline reading indicated a 0.8% advance in November, hotter than the 0.7% consensus and coming on the heels of a 0.9% advance in October. Contributing to the headline reading, the food index rose 0.7%, with the food at home index increasing 0.8% and the food away from home (not seasonally adjusted) increasing 0.6% in November. Additionally, the energy index increased 3.5%, with the energy commodities index advancing 5.9% and the energy services index increasing 0.3% for the month. That monthly advanced resulted in a 6.8% annual CPI increase, an acceleration from the 6.2% rate seen in the 12-month period ending in August, however, in line with expectations. Notably, this was the largest annual increase since the 12-month period ending June 1982.
CPI ex-food and energy, or core CPI, is often viewed as a proxy for inflation. Food and energy get stripped out because their prices tend to be volatile from month to month. Core CPI increased 0.5% in November, matching expectations and resulting in a 4.9% annual core CPI increase, in line with expectations and an acceleration from the 4.6% rate seen in the 12-month period ending in October.
What we are watching ahead:
No companies in the portfolio are scheduled to report earnings next week, but we do have our eyes on one event. Eli Lilly (LLY) will have an investor meeting next Wednesday at 9:00 am est.
Here are the earnings in the week ahead we’ll be monitoring:
Monday
–
Tuesday
–
Wednesday
Open: ABM Industries (ABM), REV Group (REVG), Toro (TTC)
Close: HEICO (HEI), Lennar (LEN), Nordson (NDSN), Trip.com (TCOM)
Thursday
Open: Accenture (CAN), Adobe (ADBE), Jabil (JBL), Worthington (WOR)
Close: FedEx (FDX), Quanex (NX), Steelcase (SCS)
Friday
Open: Darden Restaurants (DRI), Winnebago (WGO)
Close:
On the macroeconomic front, in addition to keeping an eye on the geopolitical sphere, we will be watching out for the following releases (all times ET):
Monday
–
Tuesday
6:00 NFIB Small Business Index
8:30 PPI
Wednesday
8:30 Export Price Index
8:30 Import Price Index
8:30 Empire State Index
8:30 Retail sales
10:00 Business Inventories
10:00 NAHB Housing Market
14:00 FOMC Meeting
Thursday
8:30 Building Permits
8:30 Jobless Claims
8:30 Housing Starts
8:30 Philadelphia Fed Index
9:15 Capacity Utilization
9:15 Industrial Production
9:45 PMI Composite (Preliminary)
11:00 Kansas City Fed Manufacturing Index
Friday
–
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(Jim Cramer’s Charitable Trust is long LLY, AVGO, COST.)