Here’s The Asset Guidance Group Outlook for the Week Ahead… 

Investors are probably eager to bid a swift goodbye to what has been a challenging year, but one more holiday-shortened week remains. Although the economic calendar is light, and with many global markets closed today in observance of Christmas Day, volatility and year-end flows combined with lower liquidity could keep things interesting. In the U.S. there are no major releases, but a few second-tier events are worth noting. On Tuesday trade balance figures and December’s preliminary wholesale inventories will be issued, along with the housing price index.
Wednesday follows with pending home sales and the Richmond regional business
survey. Weekly jobless claims and Chicago PMI round out the U.S. docket.
Overseas, most of the activity is in Asia. The Bank of Japan’s summary of opinions
may shed more light on last week’s decision to raise the 10-year bond’s yield cap to
50bps from 25bps. Traders expect the BOJ to abandon negative rates by April,
when a new governor takes over. Core CPI and retail sales data will be published,
while in China, PMIs will be released as the country deals with an explosive Covid
outbreak. [1]

International:

International markets were likewise mixed.  Canada’s TSX rose 0.3%, while the United Kingdom’s FTSE 100 rallied 1.9%.  France and Germany rose 0.8% and 0.3% respectively, but in Asia, China’s Shanghai Composite plunged -3.9% and Japan’s Nikkei tumbled -4.7%.  As grouped by Morgan Stanley Capital International, developed markets finished the week up 0.7% and emerging markets ended down -0.1%.

Commodities: 

Precious metals finished the week to the upside, with Gold rising 0.2% to $1804.20 per ounce and Silver adding 0.6% to $23.92.  Oil finished up for a second week in a row.  West Texas Intermediate crude oil rallied 6.9% to $79.56 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, finished the week up 1.3%.  

U.S. Economic News  

The number of Americans filing for first-time unemployment benefits ticked up last week, but remained near historically low levels.  The Labor Department reported initial jobless claims rose by 2,000 to 216,000 last week.  Economists had expected a reading of 220,000.  Twenty-seven of the 53 states and U.S. territories that report jobless claims showed an increase last week.  Only Massachusetts posted an increase of more than 1,000 (1,433).  Still, the consensus view remains that rising job layoffs are a matter of when, not if.  Economist Thomas Simons of Jefferies wrote, “We expect that claims are going to trend higher over time, but only gradually so.”  Meanwhile, continuing claims, which counts the number of people already receiving benefits, remained basically unchanged at 1.67 million.

Sales of existing homes fell for a tenth consecutive month in November—the longest losing streak on record.  The National Association of Realtors (NAR) reported existing home sales fell 7.7% to a seasonally-adjusted annual rate of 4.09 million last month.  Existing home sales have dropped by nearly 37% over the past ten months which is a new record.  Economists were expecting existing home sales to fall to 4.17 million.  Outside of the pandemic, the level of sales activity was lowest since November 2010, at the tail end of the foreclosure crisis in the United States.  Compared with the same time last year, home sales were down 35.4%.  After the “easy money” pandemic boom, the drop in existing-home sales of single-family units over the past year is the largest ever recorded, breaking the record last set in 2007.  The median price for an existing home fell to $370,700 in November, from $379,100 in October.

The confidence of America’s homebuilders has fallen every single month so far in 2022 and December was no exception.  The National Association of Home Builders (NAHB) reported its monthly confidence index fell two points to 31 this month.  Outside of the pandemic, this month’s reading is the lowest since 2012.  For perspective, at the same time last year the NAHB index stood at 84.  The three gauges that make up the headline index were mixed.  Current sales conditions fell 3 points, while the component that assesses sales expectations for the next six months rose by 4 points.  The gauge that measures prospective buyers remained unchanged.  All four NAHB regions posted a drop in builder confidence, led by the South and the Northeast.  However, Robert Dietz, chief economist at the NAHB noted that the report contained at least one silver lining.  Dietz noted, “It is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment.”  Going forward, Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, is optimistic housing is nearing a bottom.  Clancy wrote in a note, “We think home sales will find a floor by the end of the first quarter, helped by the near-75 [basis point] decline in mortgage rates since late October.”

The Personal Consumption Expenditures Index (PCE), a key gauge of inflation rose, just 0.1% in November, marking a fifth consecutive month of easing price pressures after peaking over the summer.  The index slowed to a 5.5% annual rate of inflation, down from 6.1% the month earlier.  It was the smallest increase since October of 2021.  The PCE index is rumored to be the Federal Reserve’s preferred measure of inflation, especially the core gauge that strips out volatile food and energy costs.  The core index rose 0.2% last month, matching Wall Street’s forecast.  The increase in the core rate of inflation in the past 12 months relaxed to 4.7% from 5%.  That’s also the lowest level since October 2021.  Chief economist Gus Faucher of PNC Financial Services stated, “The economy is moving in the right direction from the Federal Reserve’s perspective at the end of 2022, but not quickly enough.”

Consumers are feeling more in the holiday spirit as the pace of inflation slows and worries of an impending recession recede a bit.  The Conference Board reported its survey of consumer confidence jumped to an eight-month high of 108.3 in December, reflecting fewer worries about inflation and more optimism about jobs and the economy.  The closely followed index rose 6.9 points — its first increase in three months — from 101.4 in November.  Economists had expected a reading of just 101.2.  In the details, a measure of how consumers feel about the economy right now jumped 8.9 points to 147.2—its highest reading since early summer.  A similar confidence gauge that looks ahead six months advanced to 82.4 from 76.7 and hit an 11-month high.  Analysts were quick to point out that the economy isn’t out of the woods just yet.  Katherine Judge of CIBC Economics wrote, “The future expectations index remains notably low by historical standards, suggesting that consumers are still somewhat nervous about what 2023 will bring.”

In contrast to the sentiment indicators reported above, the Conference Board’s index of Leading Economic Indicators (LEI) fell a sharp 1% in November, marking its ninth decline in a row and pointing to a weakening economy.  The LEI is a gauge made up of 10 underlying indicators to show whether the economy is getting better or worse.  The leading economic index fell last month largely because of higher jobless claims, a sagging housing market and a slowdown in manufacturing.  Ataman Ozyildirim, senior director of economic research at the board stated, “The U.S. LEI suggests the Federal Reserve’s monetary tightening cycle is curtailing aspects of economic activity, especially housing.  As a result, we project a U.S. recession is likely to start around the beginning of 2023 and last through mid-year.” [2]

Random Thought/Image of the Week

Long before Russia’s invasion of Ukraine, inflation was rearing its ugly head in many facets of America’s economy.  Last January, prices at the pump were already up nearly 50% from the same time in 2021.  While most are aware that Russia was Europe’s main energy supplier, many would be surprised to know that the largest oil producer in the entire world is not Saudi Arabia, but the United States.  The United States produces more than 20% of the world’s global oil supply.  Russia and Saudi Arabia combined produce just a smidge more, at 23%. (Chart from chartr.co). [3]

Chart of the Week: 

Bonds had a rough week across the board, and the 30-year Treasury Bond Futures (/ZB)
showed a clear reversal from the last two months of rising prices. The general expectation is that rates will continue to rise into next year, so existing bonds are looking less attractive, contributing to the 3% slide last week. Just like the S&P500 did the week before, the retreat came right on cue after touching its down-sloping resistance line that’s been intact since March.
Technical support at the 50-day exponential moving average broke down, and the EMA turned to a downward
direction as well. Both of those signals had not been seen in over a month. The long bond is down more than 30% from its 2020 high, and at least for now the trend seems stubbornly bearish, portending rising long-term rates.  Click here to view chart [4]

Sources: [1] tdainstitutional.com; [2] [6] Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab; [3] chart from cnbc.com; [4] tdainstitutional.com; [5] grouped and reported by kwanti.com, imported from TDAmeritrade Institutional, Risk categories as scored by Grabbel-Lytton test and grouped by like risk tolerance levels; NOTE: individual account performance grouped solely by model classification type in terms of risk tolerance. Individual portfolios include equivalent equities exposures via like models but many may hold additional invetments like structured notes, fixed income investments such as CDs, bonds, and other invidivually preferred securities. 1-Week risk score denotes overall performance of all AGG client portfolios grouped together by like-risk tolerance scores not by identical investment allocations; [6] SIMON portal, FIGmarketing.com.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.