December 10th, 2021
With 14 trading days left in 2021, bulls wasted no time in turning markets around from last week’s Omicron-fueled sell-off. The bullish sentiment on the Street was driven by early data on the Omicron variant signaling the variant causes mild symptoms and the current arsenal of Covid vaccines provide a high degree of protection against the strain. Although the data is limited, and scientists still need more time to draw a definitive conclusion, the news was deemed good enough for Wall Street to rally based on the assumption it will have a minimal impact on U.S. economic activity. Developments on the Omicron variant primarily drove the market this week as U.S. economic data was generally light with the CPI Index being the highlight of the week. In overseas news, export data from China suggests holiday shopping is in full force with the country’s export figures rising to record highs. For the week, the S&P 500 rallied 3.82% to a new record close of 4,712.02.
Strong Demand Continues to Stroke the Inflation Fires
Winter may be upon us, but consumer prices continue to sizzle on Main Street. The CPI Index rose 6.80% year-over-year (yoy) in November, in line with Dow Jones economist estimates of 6.70%. That’s the biggest increase since June 1982. Excluding food and energy, core CPI was up 4.90% from a year ago, which itself was the sharpest rise since mid-1991. We’re all feeling the sting of inflation these days with food and energy prices rising at the fastest rates in at least 13 years. Energy prices overall have jumped 33.30% yoy with gasoline prices in particular rising a whopping 58.10% from year ago levels. Holiday dinner looks to be more expensive this year with food prices up 6.10% from the same period last year. If you’re looking to gift a used car or truck this holiday season, good luck on finding a deal since their prices are up 31.40% yoy. Despite the record reading, markets managed to take the news in stride as it believes demand will ultimately subside and supply chain constraints will loosen over time to ease inflationary pressures. Consumers have been able to keep up their spending despite rising prices as wages have also moved higher. The affect has been most pronounced for people who have switched jobs. Payroll company ADP reported people who changed jobs saw an average wage growth of 6.60% in September, up from 5.10% in the first half of the year. The wage gains don’t seem to be disappearing soon. The Conference Board’s November survey reported companies are setting aside 3.90% of their payroll budgets for raises next year, a record high not seen in more than a decade. The survey also showed that companies are planning on raising salary ranges, which would result in higher minimum, median, and maximum salaries. In short, employers are feeling generous these days given that inflation is padding their top line. That’s bad news for any Scrooges hoping to retain workers
The World Stocks Up for Christmas
China’s factories were feeling the holiday crunch in November as strong global demand pushed up exports to a record high. Exports rose 22% in dollar terms from a year earlier to $326 billion. Demand was led by exports to the U.S. which were up 28.30%. Chinese imports also made a solid showing, rising 31.70% to $254 billion. Demand for goods around the world has remained remarkably strong throughout 2021 despite the expectation less strict Covid restrictions would lead consumers to shift their spending from goods to services. Consumers could continue to find comfort in goods well into 2022 if the Omicron variant were to run rampant and shutdowns accelerate. That scenario would work in China’s favor as its zero-Covid strategy has been able to keep Covid waves in check and factory floors sweeping up orders.
The holiday cheer was back on Wall Street this week as major indices flirted with all-time highs. Investors reversed course on their previous concerns to Omicron’s economic impact and wasted no time in buying the dip. The bullish sentiment is supported by businesses having continued to defy analysts’ expectations. Throughout 2021, analysts have been betting labor shortages, rising materials costs, and supply chain bottlenecks would hurt companies’ bottom lines, but Corporate America has negotiated the current operating environment flawlessly. Inflation, which is typically toxic to markets, has not manifested in reduced demand in part because affordability is being supported by wage gains and limited supply has whet consumers’ appetites. One can imagine this theoretical world, where everything inflates, but the economy remains in equilibrium and everyone is happy because the velocity of money through the economy is high. The inconvenient reality, however, is that at some point either demand gets satisfied (or more likely the excess cash underpinning the demand gets spent), supply normalizes, fixed rate markets panic or the Fed over corrects while trying to tame inflation – any or all of which could throw a rod in this economic engine while it is running hot. Those are the questions the Federal Reserve will be debating at next week’s FOMC meeting, where their announcement will determine just how merry of a Christmas bulls will have this year.
The Week Ahead
It’s beginning to look a lot like Christmas, and we’ll get an early read on the holiday shopping season as the November retail sales figures are released. Traders will also be paying close attention to the FOMC meeting in hopes the Federal Reserve doesn’t spoil the holiday cheer by announcing more aggressive central bank measures to reign in rising prices.
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The Cost of a True Love Christmas
For nearly forty years, the Christmas Price Index (CPI) has been a lighthearted holiday tradition that examines the cost of purchasing all of the presents in the classic holiday song, “The Twelve Days of Christmas.” It’s a play on the Consumer Price Index (CPI) published by the Bureau of Labor Statistics that measures the average change over time in the prices paid by consumers for a market basket of consumer goods and services.
The Christmas Price Index calculations are done by PNC Bank in Philadelphia, and this year, the elves at the bank compared 2021 prices to 2019 data to better gauge the impact of inflation given that 2020 was such an anomaly. Prices for just about everything are rising at rates not seen in more than three decades due to the impact of a-once-in-a-century pandemic and a snarled supply chain.
But first, what are the 12 days of Christmas? The 12 days of Christmas in the song is a reference to Christianity for the period beginning on December 25th with the birth of Christ and continuing until the coming of the three wise men on January 6th, a day known as the Epiphany or Three Kings Day. The weeks leading up to Christmas are known as Advent. Many historians believe the song originates from a children’s memory game where each player repeats all the previously sung lyrics and then adds the next one. The first printed version of the song appeared in a children’s book in 1780. The original lyrics are a bit different than the words we know today. The “four calling birds” were “four colly birds,” meaning birds dark as coal. In other versions of the song, the partridge in a pear tree was a peacock. A Scottish rendition of the song gifts “an Arabian baboon.” In 1909, a British composer penned the version of the song that most people are familiar with today.
According to PNC Bank’s annual calculations, a partridge in a pear tree will set you back $222.68 this year which is a 6% increase over 2019. However, it’s the price of the tree that is driving the increase. The tree rose from $189.99 to $202.50 while the price of the partridge – $20.18 – stayed the same. The price of two turtledoves has soared 50% to $450 this year. The price of three French hens is up 40.5% to $255 in 2021. Four calling birds will set you back $599.96 again this year, which is the same as pre-pandemic pricing. Five gold rings will cost $895, an 8.5% increase. Six geese-a-laying jumped in price by more than 57.1% to $660, the highest increase of any gift in the index. Seven swans-a-swimming are typically the most expensive gift in the CPI at $13,125, so buyers will be happy to know the price is the same as it was in 2019. PNC gets its partridge and turtle dove prices from a national bird supplier and its geese price from a waterfowl farm, while hatcheries provide the cost of hens and swans. A national pet chain provides the cost of calling birds.
Moving on to services and live performances, the eight maids-a-milking will cost $58 in 2021 based on a minimum wage of $7.25 per hour. Nine ladies dancing were not available last year due to restrictions on large gatherings and social distancing requirements, but they are back this year. PNC uses a modern dance troupe to estimate the price which is $7,552.84, the same as in 2019. Ten lords-a-leaping rose 12.6% to $11,260 in 2021 based on the cost of ballet performances. Eleven pipers piping are available in 2021 for $2,943.93, the same price as last year had they been able to perform. Twelve drummers drumming ring in at a cost of $3,183.17 in 2021, up from $2,972.25 in 2019.
In total, the cost of all of the gifts in the song rose 5.4% to $41,205.58. However, if the gifter repeats each gift every time it is mentioned in the song, there would be 364 presents which would bring the total cost of a true love Christmas to a whopping $179,454.19.