Today’s inflation numbers show consumer prices rose at a 10% annual rate in November. After removing the impact of food and energy, inflation was still at a 6% annual rate. The Fed is so far behind in the fight against inflation, it will take a long-time to get it under control.
The Week That Was
Today’s report on November consumer prices shows annualized increases of 10% and 6% for the total and for prices ex-food and energy. Even with oil prices down in December, inflation will remain.
The labor market remains tight. The new weekly unemployment claims averaged close to 184,000, the lowest number since 1969. In early December people receiving insured unemployment payments fell to 2.0 million, down from November’s 2.1 million.
Covid Is Still Alive
In the three months ending in November, Covid deaths reached 135,000, an annual rate of 540,000. This is more than the annual rate for this year through November and is more than all the Covid deaths last year. For a serious discussion and explanation on what should be the obvious failures of our government medical establishment watch this the insightful interview with Dr. Jay Bhattacharya.
There is also bad news concerning the Covid vaccines. Vaccine Adverse Reactions (VAERS) reports to the CDC show a high rate of deaths, permanent disabilities and life-threatening side effects. You can see the latest numbers at the VAERS website.
The good news on Covid is growing evidence of safe, highly successful, inexpensive treatments. See here for information about successful Unfortunately, our medical establishment rejects inexpensive treatments. It prefers the expensive vaccines and boosters which enrich pharmaceutical companies.
Things to Come
On Wednesday the Fed will report on its latest monetary policy decision. Powell already has indicated an intent to end tapering prior to June. Financial markets already have reacted. There is a 62% probability of at least a ¼% hike in the fed funds rate at the May meeting. November retail sales will also be released on Wednesday. There are mixed signals here as well.
Retail sales in October were 21% above their pre- Covid peak. Wages are only 10% above that peak. Hence, sales continue to outpace incomes. This raises the potential for a decline in sales at any time. However, November oil prices surged 14% from the previous month and auto sales increased 6%. These large increases point to a potential monthly increase in spite of the disparity with incomes.
The December Homebuilders’ Index is due on Wednesday and should show continued builder confidence with readings in the vicinity of 80. The market for new homes remains strong.
On Thursday, the Fed’s index of manufacturing output should register a healthy advance. Recent business surveys on manufacturing have been fairly strong. As a result, the manufacturing index should continue to increase in the vicinity of a 4% annual rate.
Thursday the Markit will report on overall business activity in early December. Markit’s surveys have indicated continued growth, but not as strong as the more popular ISM surveys. Look for the Markit numbers in December to remain in the vicinity of 60, indicating a healthy advance. incomes.
Market Forces
Stocks rebounded from last week’s losses as the Dow rose 3%, the S&P 2% and the Nasdaq 1%. The gains failed to make up for the prior week’s declines. Although concerns over the Omicron variant seemed to subside, deaths attributed to Covid have been trending higher.
The good news for stocks is the major indexes continue to find support at key levels. However, trading volume on the rebound remains low. As a result, the technical indicators remain neutral and provide little indication of the next move.
With the S&P500 at 4668, it is less than 1% below its all-time high and 35% over its fundamental value. Monetary policy continues to push stocks higher. The prospects for flat to modest earnings growth will eventually pull stocks in the opposite direction.
The odds are only slightly in favor of money winning the near-term push. Interest rates are preparing to adjust for inflation.
Markets continue to anticipate the Fed can easily contain inflation with only moderate increases in shorter-term interest rates. Longer-term yields remain low, while shorter-term yields assume only a slight upward move will solve the inflation problem. I disagree.
Outlook
Economic Fundamentals: neutral
Stock Valuation: S&P500 overvalued by 35 percent
Monetary Policy: expansive