MARKET RECAP

For the opening week of the year US equities fell by 2.21% while international stocks were roughly flat, down by 0.08%. Bonds fell by 1.39% as interest rates increased. The 10-year yield closed the week at 1.76%, up by 24 basis points.

The higher interest rates, and the sell-off in stocks and bonds were mainly due to the release of the December minutes from the Fed indicating the chance that the Fed might begin to reduce its balance sheet sooner than expected, that is on top of the 3-4 interest rate increases that are now expected in 2022.

Non-farm payrolls came in at 199,000, much less than the anticipated 424,000 increase. But still, the overall report continues to indicate a very tight labor market. Unemployment fell to 3.9% from 4.2% last month, below the FOMC estimate of the the long-run equilibrium rate. Wage growth is now running at between 7 and 8% annualized.

Former Treasury Secretary Lawrence Summers said on Bloomberg’s Wall Street Week that “the level of heat we have in the labor market is consistent not only with high inflation but with accelerating inflation.” The Fed might have to cool the economy to get inflation under control.

Higher interest rates helped energy and financials, but hurt technology and the other high-fliers. Bitcoin is down by about 38% since its November high. The Nasdaq 100 is sitting right on support. This will be the third test at this level in recent weeks.

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