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Weekly Economic and Stock Market Commentary: January 31, 2022


As for the stock market specifically:

The US markets saw their first weekly gains for the year. A big day Friday snatched victory from the jaws of defeat, even for the Nasdaq Composite, which has been beaten badly this year. On the other hand, the international stocks fell for the week, which is the first week of 2022 where they underperformed US markets.

Since January was so bad, you likely won’t like what you see on your January statement. To that statement, remember markets contain risk they are not an entitlement. We simply do our best to take advantage when the wind is in our favor, and similarly, attempt to mitigate risk when the wind is in our face.

I hoped to make this week’s commentary fairly lighthearted, but market events over the past couple of weeks require some serious points, so much of the fun stuff will have to wait.

By the full month version of the January barometer, this year will be rough. The first week of January barometer suggested a tough year, too. However, the first day January barometer pointed to a good year.

Last week provided multiple days with large intra-day swings. I believe there were two days where we saw intraday moves greater than 4%, and one day where the Dow Jones Industrial Average closed up for the day after being off more than 1000 points earlier in the day.

Like most people, I try to use my experience to do my job better. Since September will mark the 30th year I have been licensed to do what I do, I learned a few things – sometimes the hard way.

First and foremost is that given enough time, the market will make fools out of all of us. Somehow the market finds a way to surprise us (sometimes in a good way, sometimes not). We know that is obvious.

Another lesson I learned concerns making major moves when US stocks are either ranked first or second (out of 6) against other asset classes when doing relative strength analysis. Right now, US stocks are in the first place. Experience suggests that making modest moves has better results than throwing out the baby with the bathwater and starting over.

We saw two of the three bullish percent indicators fall below the 30-yard line. We also saw some short-term indicators hit extreme low levels. As usual, I can’t tell if this is a renewed start of something good or a short-term bounce. We will continue with WEALTH PRESERVATION strategies. (NOTE: I’m late in sending this Commentary, and with trading on Monday and Tuesday, we now have our indicators back to positive.)

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of January 28, 2021 (Courtesy Dorsey, Wright, and Associates).

On a general note:

It was a big week for economic news releases. The Department of Commerce announced its first estimate of Gross Domestic Product for the 4th quarter. They said the economy grew at an annualized rate of 6.9%. For the year, the US economy grew at the fastest rate since 1984 – 5.5%. The fourth-quarter growth rate was triple the 3rd quarter’s. That brings us to the economist Harry Truman hated – the one with 2 hands. The “second hand” in this case is that much of the new growth came in the form of inventory replenishment. From what I see in stores, I wish they’d speed it up.

The Labor Department reported employment costs rose about 4% in 2021. This came as inflation rose about 7% for the year, so employees lost ground. The employment cost index comprises wages and benefits. The rate of increase was the largest in more than 20 years. In a related report, the Federal Reserve stated its version of inflation known as the personal consumption expenditure index, rose 4.9% in 2021.

The Commerce Department released data showing consumer spending fell 0.6% in December. The report also showed December’s inflation-adjusted income on the household level fell by 0.2% compared to November.

Finally, the S & P Core Logic Case-Schiller Home Price Index for November came out. This showed a slowing of price increases for homes. The national index that measures major metropolitan areas rose 18.8% for the 12 months ending in November 2021. The 10-city index saw prices increase by 16.8%, while the 20-city index rose 18.3%.

Questions? Email me at philip.rongo@ibexwealth.com.