Stocks fell Monday to start a holiday-shortened week, with markets closing Friday for Christmas.
Stocks opened pretty sharply lower and fell even further before recovering some of their losses in the second half of the day.
Reasons for the drop include comments from West Virginia Sen. Joe Manchin, who cast doubts over the weekend on his willingness to vote for a Build Back Better bill any time soon. A rapid rise in coronavirus cases also likely spooked some traders, although it seems any new or re-imposed restrictions will be relatively localized, leaving the economic effects of this new wave unclear.
Manchin’s No-Vote
Manchin’s pronouncement on Biden’s $2 trillion infrastructure bill prompted Goldman Sachs to lower its GDP forecast for the coming year from an annualized rate of 3% to 2%. Second-quarter was slashed to an annualized rate of 3% from 3.5%, and the third quarter was reduced to 2.75% from 3%.
As Manchin as specified some provisions he will vote for, the negotiations will now likely center on getting those passed in whatever form that may take.
Sentiment
The University of Michigan’s Index of Consumer Sentiment will be a pretty interesting read when it comes out Wednesday. In the preliminary report, which showed sentiment rise to 70.4, the conversation was primarily about inflation versus employment as about 76% of people saw inflation as the greater threat, 21% saw employment as the greater threat, and the remainder weighted them equally. Omicron wasn’t feeling very threatening in the report, but as lockdowns loom in Europe and the NFL postpones games, the dynamic here could shift.
Noted in the previous report was how the bottom-third of income earners were the most optimistic about the future. We noted that this made sense at the time due to the number of wage increases that service jobs have received this year in order to incentivize employment.
Likely the 21% that feared employment over inflation were people in service roles that were benefiting from the labor shortage dynamic, meaning the optimistic bottom-third could turn sour given persistent inflation, or a change in their work status.
PCE Prices
The PCE report will be a good read on inflation when released Thursday. In the October report, income gains (+0.5%) were more than offset by price increases (0.6%), meaning increases in spending came at the expense of savings.
The savings rate fell from 8.2% to 7.3% from September to October, which was probably less steep than it appeared at first glance as holiday spending picked up.
For November, economists are expecting the core reading to stay in line with October’s reading of 0.4%.
Economic Events this Week
Tuesday
- 8:30 a.m. - Current Account Balance
Wednesday
- 8:30 a.m. - GDP - Third Estimates
- 10:00 a.m. - Consumer Confidence
- 10:00 a.m. - Existing Home Sales
- 10:30 a.m. - EIA Crude Oil Inventories
Wednesday
- 8:30 a.m. - Initial and Continuing Claims
- 8:30 a.m. - Durable Orders & Durable Goods
- 8:30 a.m. - PCE Prices
- 8:30 a.m. - Personal Spending & Income
Earnings Reports This Week
Monday:
After the bell:
NKE, MU, CVGW
Tuesday:
Before the bell:
RAD, GIS, FDS, APOG, EPAC
After the bell:
AIR, BB, CAMP
Wednesday:
Before the bell:
KMX, CTAS, PAYX, MSM
Thursday:
Before the bell:
SAFM
