January 15th – Market Update

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The Top-Line

In the Macro
  • America’s record 2021 job growth
  • Inflation reaches 7% for the first time since 1982
In the Micro
  • Major US banks kick off earnings season

The Bottom-Line

In the Macro

America’s record 2021 job growth

In 2021, the United States added a staggering 6.4 million jobs, marking the best year for the labor market since 1939 when tracking started. The pandemic caused 9.4 million job losses just a year ago, making 2020 the worst year ever recorded for annual employment. The economy has come a long way in such a short time.

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Source: Axios

The unemployment rate closed out the year by falling to a pandemic-era low of 3.9%. With the data recorded prior to the latest surge in Covid-19 cases, we could see a pullback in the coming weeks. Economic growth is expected to continue in 2022, though. 

According to the Labor Department, 2021 saw average monthly job growth of 537,000. While December’s jobs report showed only 199,000 new positions, the slow down might have more to do with employees than employers. Last month, the labor force participation rate was 61.9%, still 1.5% below pre-pandemic levels. 

There is still a shortage of workers across the country and fewer people willing to fill those vacancies. In a bid to attract new applicants, companies are paying more, with the average hourly wage up 4.7% year over year. Wages will need to rise even further this year to keep up with inflation.

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Source: New York Times

Inflation reaches 7% for the first time since 1982

As we discussed in our year-end recap, inflation was a key theme of 2021. The United States consumer price index (CPI) rose again for the year’s final month, with the increase clocking in at an annualized rate of 7%. The December data, released this week, shows an inflation rate not seen since June 1982.

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Source: CNBC

Shelter, automobiles, and energy contributed significantly to the increase. The price of shelter rose 4.1% over the year, the largest jump since February 2007. Used vehicles saw a jump of over 37% during the year, and gas prices saw a sharp incline of nearly 50%. 

Supply-chain issues are also to blame for inflation. With Omicron cases just beginning to increase in Asia, we could see significant disruption to manufacturing in the coming months. While this would likely be temporary, interruptions to manufacturing could lead to even higher prices for a time.

During his Senate confirmation hearing, Federal Reserve Chairman Jerome Powell recognized the concern of rising prices. He suggested, “if we see inflation persisting at high levels longer than expected, then if we have to raise interest rates more over time, we will. We will use our tools to get inflation back.” Those tools include tapering its bond-buying program, which is set to end in March and shrinking its balance sheet, which could begin later this year. 

Ending the year, analysts expected up to three rate hikes in 2022, though they have already started re-evaluating. The chief economist at Goldman Sachs now predicts four rate hikes of 25 basis points throughout the year, with the first taking place in March. 

In the Micro

Major US banks kick off earnings season

Earnings season kicked off on Friday, January 14, with the major US banks reporting. For most of the pandemic, financial institutions saw a significant bump in profits thanks to volatility in the stock markets, an uptick in mergers and acquisition activity, and a jump in mortgage applications. It seems revenue growth is beginning to cool, though, at least for now.

Here is a look at what happened with the US banks last quarter:

JPMorgan Chase: Announcing a profit of $3.33 per share, JPMorgan saw their Q4 profitability decline 14%. The largest American bank reported a boost in investment banking revenue, but not enough to make up for the 13% decline in trading earnings. The company also suggested that expenses could be higher than initially anticipated over the next year. 

Following earnings, shares of JPM were down over 6%, their most extensive single-day loss since April 1, 2020. 

Citigroup: The decline in profits continued for Citigroup who saw an 8% increase in operating  expenses, and suffered from weak consumer banking revenue. On a per-share basis, profits fell to $1.46 per share, a 26% drop from the prior year.

Wells Fargo: The earnings report for Wells Fargo seemed to buck the trend as the bank grew profits by 86%. Asset sales provided a boost of $943 million and continuing operations remained strong. Over the quarter, expenses fell, and Wells Fargo plans to continue cost-cutting into 2022. 

The company’s shares posted an increase of 3.7% following the earnings release. 

Bank of America: While Bank of America does not report until January 19, a recent announcement said they would drastically decrease their overdraft charges. The move echoes that of other financial institutions, but it is not without consequences. In 2020, overdraft fees added $1.11 billion in revenue for BoA. Analysts estimate that in Q3 2021, overdraft accounted for 1.4% of the bank’s total revenue. 

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Source: Wall Street Journal

Reacting to the first earnings reports, the S&P500 and the Dow Jones Industrial Average ended lower for a second consecutive week. Overall though, JPMorgan’s Jamie Dimon reflected positively on the past year, saying, “in spite of Omicron, in spite of supply chains, 2021 was one of the best growth years ever.” He continued, saying expectations remain positive as “2022 looks like it will [be] actually pretty good.”

As always, if you have any questions or would like to discuss further, please do not hesitate to reach out. Feel free to share with your friends and family too, as referrals are the best compliment we can receive.

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February 15th Market Update

The Top-Line In the Macro How did Omicron impact January’s job market? Canada’s real GDP surpasses pre-pandemic levels  In the Micro Will conflict in the Ukraine impact the financial markets and your portfolio? The Bottom-Line In the Macro How did Omicron impact January’s job market? A surge in Covid-19 cases in December and late January

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