**Daily Market Recap:**
• U.S. equities made a late-day comeback, as the S&P 500 closed slightly in the green. The financials sector lagged today, down over 1.0%, and weighed on the Dow Jones Industrial Average, which fell over 200 points. This was driven in part by somewhat disappointing large bank earnings, which noted increasing expenses and ongoing supply chain issues as headwinds. Meanwhile, energy prices continue to move higher, with WTI crude oil up over 2.0%. This has supported the large up move in the energy sector, which is now up an impressive 16% in 2022. The technology sector outperformed today as well, with the Nasdaq index up over 0.5%.
• This morning’s December retail sales figure fell short of expectations, coming in at -1.9% versus consensus for a flat reading. Retail sales ex-autos also disappointed, down -2.3% month-over-month, versus expectations for a positive 0.20% reading. The biggest drops seemed to come from areas like online retail, department stores, and furniture stores – all indicative of a slower consumption picture overall. Perhaps some retail demand had been pulled forward in earlier months, as consumers anticipated shortages and higher prices heading into the holiday season. Nonetheless, we continue to see softening economic momentum heading into the first quarter, as a combination of inflation and omicron-driven weakness weigh on demand and growth.
• Fourth quarter S&P 500 earnings season kicked off today, as large U.S. banks like J.P. Morgan and Citigroup reported earnings. While the banks beat earnings expectations overall, guidance on rising expenses worried markets – causing the bank stocks to fall broadly; the sector had also been up over 5.0% this year heading into earnings as well. We continue to believe that value sectors of the market, including financials (as well as energy and industrials) have room to perform relatively well, particularly in the first half of 2022. However, earnings growth for 2022 broadly is expected to moderate to about 9%, from 45% in 2021; in our view, equity returns are also likely to moderate, perhaps in-line with earnings growth, in the single-digit range.
Higher Rates Are Coming for U.S. Companies
The burden of interest rates on most companies is still exceedingly low. But over the next year, that will start to change.