Weekly Update 12/30/2022: End of Year
- Housing industry still struggling
- Covid spreads in China
During the last week of the year, there was not a lot of activity on Wall Street. Traders have already absconded to whatever winter holiday destination meets their needs. Investors are licking their wounds on a tough year in the markets. Meanwhile, the government bureaus continue to release economic data which will comprise the bulk of this week’s email as there was little to no market moving activity from our Core names this week.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, fell 0.5% in October compared with September, the fourth straight month-over-month decline. According to the index, prices are down 3% from their June highs and declining fastest in West Coast markets such as Phoenix and Las Vegas. The index measures repeat-sales data, reports on a two-month delay and reflects a three-month moving average. Thus, October data is based on purchases made earlier in the year. Given that the average rate on a 30-year fixed-rate mortgage was 6.27% as of December 22 according to housing-finance agency Freddie Mac, it is likely future Case-Shiller data will be even lower. Existing-home sales taken from another survey shows that they have fallen for 10 straight months through November. A year-earlier the mortgage rate was 3.05% so it has more than doubled in that time period putting pressure on buyers.
Initial jobless claims rose by 9,000 to a seasonally adjusted 225,000 last week, the Labor Department said Thursday. Average weekly claims this year through mid-December were slightly lower than the 2019 average of 218,000, when the labor market also was historically strong. Claims are higher than this past spring but remain tight enough to suggest that employers are still holding on to their workers. In November, employers added 263,000 jobs according to the monthly data from the Labor Department. While there have been high profile layoff announcements from Meta Platforms, Amazon and Salesforce, those adjustment have not translated into a sharp uptick in filings for unemployment benefits. There could be a few reasons for this. One is that those laid off have already found new positions. The number of available jobs in recent months continued to exceed the number of unemployed Americans seeking work, with 10.3 million openings in October exceeding the 6.1 million unemployed people seeking work that month. Second, those newly unemployed may have severance which is cushioning their financial picture for a few weeks to a few months thereby not forcing them to file immediately. Should economic conditions deteriorate further, we may begin to see the weekly figure begin to move higher as the calendar shifts to 2023.
This week traders have struggled to determine what China’s repeal of its zero-Covid policy will mean for markets. While lifting restriction will lead to more growth in the future, in the present it has led to the virus spreading like wildfire. Hospital intensive care units are overwhelmed and many sick are being turned away as China transitions. Two Chinese cities reported daily cases that far surpassed the official national total. The city of Dongguan in the southern province of Guangdong has 250,000-300,000 infected the city’s health commission said on WeChat, a popular messaging tool, on Friday. Qingdao city in the eastern province of Shandong reported 490,000-530,000 cases according to a local newspaper report on Friday. The official tally from Beijing for the entire county is 4,103 cases magnifying the huge discrepancy. Minutes from an internal meeting of the top health authority on Wednesday showed that nearly 37 million people may have been infected on a single day—that’s more than 10% of the U.S. population. This is unlikely to be the peak because the Lunar New Year holiday on January 22 is marked by tens of millions crisscrossing the country to visit friends and relatives. With cases increasing exponentially, other nations have taken steps to try to protect their borders. Japan, Taiwan and Italy are demanding Covid tests from travelers, and the U.S. will begin implementing restrictions on January 5. Italy sequenced the viral samples of passengers on two recent flights from China with about half of those on the planes testing asymptomatically positive.
While the world has been living with Covid for nearly three years, the biggest challenges arrive when a new variant becomes the dominant strain. The original virus of early 2020 was replaced by the Delta variant and then supplanted by the omicron descendant by late 2021. Every new infection offers a chance for the virus to mutate and the BF.7 subvariant, which itself is a descendant of the BA.5 strain, is the dominant strain so far in China. Currently, BF.7 is just 3.9% of cases in the U.S. but, since it is a descendant of previous omicron strains, could the current bivalent booster be an adequate defense? The main issue is that while the uptake of an initial vaccine shot has been high in the U.S., a much smaller percentage has taken subsequent boosters. A combination of both natural and acquired immunity has helped the U.S. return to many of the activities and interactions enjoyed pre-pandemic. That exposure over the last three years not only domestically but also globally is a silver lining because with so much circulating virus, antibodies have developed and limited the amount of variants. At this point, there are just too many variables to track to determine if another wave will disrupt daily life on these shores but we will continue to monitor the situation closely.
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