Weekly Economic Update presented by Meld University

Weekly Riddle:

Going forward I am heavy, but in reverse, I am not. What am I?

Tune in next week for the answer.
(Last week's riddle and answer can be found near the end of this post.)

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Weekly Economic Update

Last Week and the Economy

The Chinese central bank cut interest rates and the president of China also urged the U.S. to keep rates low. In 2021, existing home sales reached their highest level in 15 years. New unemployment claims rose last week, as a record number of people were prevented from working by COVID-19.

Last week, prices for the major U.S. stock indices fell. The Dow Jones Industrial Average [DOW] lost 4.58% for the week. The S&P 500 ended the week 5.68% lower. The NASDAQ declined by 7.55% and the Russell 2k Small Cap Index followed suit, losing 8.07%. In overseas markets, the MSCI-EAFE Index, which tracks developed international stock prices, declined by 2.09%.

China Cuts Rates, Urges U.S. to Keep Rates Low

Last week, China cut interest rates on more than $110 billion worth of one-year medium-term lending facility [MLF] loans. This is the first time China has cut rates since April 2020 – the height of the global COVID-19 recession. This rate cut went against market expectations. A large majority of traders and analysts predicted that China would leave rates untouched last week. The People’s Bank of China, the Chinese central bank, also lowered the cost of short-term repurchase agreements.

On Monday, the Chinese President, Xi Jinping, urged the U.S. to keep rates low. He said, “If major economies slam on the brakes…in their monetary policies, there would be serious negative spillovers.” He went on to say that “developing countries would bear the brunt of it.”

The rate cuts and policy demands come after China’s fourth quarter growth showed a marked slowdown. The Chinese economy expanded just 4% in the fourth quarter, the slowest pace since the second quarter of 2020. This slowdown in growth is partially attributable to continued COVID-19 infections and government regulations to control the spread of the virus which have weakened consumer demand. Additionally, China has increased regulations on property developers, a major contributor to the Chinese economy. In response to these increased regulations, real estate investment has weakened significantly.

Existing Home Sales Reached a 15-Year High

In 2021, sales of existing homes reached the highest level since 2006. For the year, sales increased 8.5% to 6.12 million units.

As buyers continue to take advantage of low interest rates, housing inventory reached an all-time low in December. Only 910,000 homes were on the market at the end of December. This is 18% lower than the inventory in November and 14.2% lower than December 2020.

The combination of low inventory and high demand has led to accelerating sales and higher prices. In December, the median sale price for an existing home reached $358,000. This is a 15.8% increase from a year ago. Homes were on the market an average of 19 days in December, down from 21 days a year ago. Additionally, 79% of homes that sold were on the market less than a month.

As interest rates rise in the coming months, the National Association of Realtors expects the housing market to slow. Though, the NAR’s chief economist, Lawrence Yun, predicts home prices will climb another 3%-5% in 2022.

Jobless Claims Rise

For the week that ended January 15, new claims for unemployment benefits rose by 55,000 to 286,000. This figure is typically viewed as a proxy for layoffs. This is the highest level of new unemployment claims since October but remains far below last years data. In January 2021, 886,000 new claims were filed.

This increase in unemployment claims comes as a record number of people were unable to work due to COVID-19. This month, the Census Bureau reported that 8.8 million people in the U.S. were unable to work because they contracted the virus or were caring for someone who was sick with it.

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Weekly Economic Update presented by Meld University
Weekly Economic Update

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China cut rates and urged the U.S. to keep rates low. Existing home sales reached a 15-year high. Jobless claims rose.

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Key Economic Data Points

Unemployment Rate:

FOMC Target Rate:

GDP:

As of November 2021: 3.9% (Next Report: 2/4/22)

As of December 2021: 0 – 0.25% (Next Report: 1/26/22)

Q3 2021: +2.3% (Next Report: 1/27/22)

Data Sources: U.S. Bureau of Labor Statistics, FRED – St. Louis Fed, U.S. Bureau of Economic Analysis.

Weekly Quote:

The stock market is filled with individuals who know the price of everything, but the value of nothing.
-Philip Fisher

The Week Ahead – Economic Data & Events

Monday: PMI Composite Flash

Tuesday: Case-Shiller Home Price Index, Consumer Confidence

Wednesday: International Trade in Goods, New Home Sales, FOMC Announcement, Fed Chair Press Conference

Thursday: Durable Goods Orders, GDP, Pending Home Sales Index, Fed Balance Sheet

Friday: Personal Income and Outlays, Employment Cost Index, Consumer Sentiment

Weekly Reports: Mortgage Applications (Wednesday), EIA Petroleum Status Report (Wednesday), Jobless Claims (Thursday), EIA Natural Gas (Thursday), Baker Hughes Rig Count (Friday)

Source: Econoday

The Week Ahead – S&P 500 Companies Reporting Earnings

Monday: Brown & Brown (BRO), Halliburton (HAL), International Business Machines (IBM), Zions Bancorporation (ZION)

Tuesday: Archer-Daniels-Midland (ADM), American Express (AXP), Boston Properties (BXP), Carnival (CCL), Capital One Financial (COF), F5 (FFIV), General Electric (GE), Invesco (IVZ), Johnson & Johnson (JNJ), Lockheed Martin (LMT), 3M (MMM), Microsoft (MSFT), NextEra Energy (NEE), PACCAR (PCAR), Raytheon Technologies (RTX), Texas Instruments (TXN), Verizon Communications (VZ)

Wednesday: Abbott Laboratories (ABT), Automatic Data Processing (ADP), Ameriprise Financial (AMP), Anthem (ANTM), Amphenol (APH), Boeing (BA), Crown Castle International (CCI), Duke Realty (DRE), Edwards Lifesciences (EW), Freeport McMoRan (FCX), General Dynamics (GD), Corning (GLW), Hess (HES), Intel (INTC), Kimberly-Clark (KMB), Lam Research (LRCX), Las Vegas Sands (LVS), MarketAxess Holdings (MKTX), Nasdaq (NDAQ), ServiceNow (NOW), Norfolk Southern (NSC), Progressive (PGR), Packaging Corporation of America (PKG), PTC (PTC), Raymond James Financial (RJF), Rollins (ROL), Seagate Technology Holdings (STX), AT&T (T), Teledyne Technologies (TDY), TE Connectivity (TEL), Teradyne (TER), Tesla (TSLA), United Rentals (URI), Vertex Pharmaceuticals (VRTX), Whirlpool (WHR), Xilinx (XLNX)

Thursday: Apple (APPL), Arthur J. Gallagher & Co. (AJG), Alaska Air Group (ALK), A. O. Smith (AOS), Ball (BLL), Celanese (CE), Comcast (CMCSA), Danaher (DHR), Dover (DOV), Dow (DOW), Eastman Chemical (EMN), HCA Healthcare (HCA), International Paper (IP), Juniper Networks (JNPR), KLA (KLAC), Southwest Airlines (LUV), Mastercard (MA), McDonald’s (MCD), Mondelez International (MDLZ), McCormick & Co (MKC), Marsh & McLennan Companies (MMC), Altria Group (MO), MSCI (MSCI), Northrop Grumman (NOC), Nucor (NUE), NVR (NVR), Robert Half International (RHI), ResMed (RMD), Rockwell Automation (ROK), Sherwin-Williams (SHW), Skyworks Solutions (SWKS), Stryker (SYK), T. Rowe Price Group (TROW), Tractor Supply Co. (TSCO), Textron (TXT), Visa (V), Valero Energy (VLO), Western Digital (WDC), W. R. Berkley (WRB), Xcel Energy (XEL)

Friday: Caterpillar (CAT), Church & Dwight Co. (CHD), Charter Communications (CHTR), Colgate-Palmolive (CL), Chevron (CVX), LyondellBasell Industries (LYB), Phillips 66 (PSX), Synchrony Financial (SYF), V.R. Corp. (VFC), Weyerhaeuser (WY)

Source: Finscreener

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Weekly Tip:

Consider rebalancing your retirement accounts. Over the course of the year, some sectors can outperform others, leading your portfolio to become out of balance. Periodically review your retirement accounts with your financial advisor and consider rebalancing to maintain your target allocation.

Major indices for last week
S&P 500 chart for last week

Data Sources for stock and index quotes: Yahoo Finance, WSJ

Join us for our next Meld University Event:

Medicare Planning: What You Need to Know to Manage Costs and Avoid Late Filing Penalties presented by Pat Burris, CFP®. The webinar will be held on February 22nd from 3:00 PM – 4:00 PM Central Time. There is no cost to attend, but you must register in advance.

Click here for more details.

 

Last Week's Riddle and Answer

Last Week's Riddle:
What runs all around a backyard, yet never moves?

Last Week's Answer:
A fence.

Securities Offered Through Triad Advisors, LLC. Member FINRA/SIPC Advisory Services Offered Through Meld Financial Inc. Meld Financial, Inc. and Triad Advisors, LLC. Are Not Related. The information contained herein should not be construed as legal advice or a legal opinion on any factual situation. Its contents are intended for general information purposes only. Always consult with a competent professional service provider for advice on tax, accounting, and other financial matters specific to your situation.

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

Riddles used in this publication may originate from the books: Lateral Thinking Puzzles by Paul Sloane; or from Workspace Solutions, LLC.

The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

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