The Week Ahead – Thanksgiving

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Happy Thanksgiving! So much of life is taken for granted. Most of us tend to just run through our daily routine without much thought to what a miraculous time it is to be alive. With vaccination rates still climbing and the game changing Pfizer antiviral medication (Paxlovid) coming in just a few months, the pandemic appears to be moving to its final phase – endemic nuisance. Each successive Covid wave has proven to be less damaging to the economy than the previous one. If we see another wave, it will almost certainly be no different. Recent downturns in the services sector of the economy does not change our view that growth will continue to rebound.

Last week we saw retail sales surge a blistering 16.3% year-over-year. Industrial Production was also up an impressive 21.4% annualized. The unemployment picture continued to strengthen, and is on track for us to get back to full employment sometime next year. All these data portend another quarter of strong corporate earnings. Further, the economy will continue to be bolstered by the roughly $3 trillion of infrastructure packages likely to go into effect in 2022. Outsized demand for goods is setting the table for a potential wage-price spiral, which could require intervention from the Federal Reserve (Fed). Thus far, they have stuck to the plan of tolerating uncomfortably high inflation until the labor market is back to full employment. Once the labor market has fully healed, we expect the Fed to hike interest rates every quarter, with a goal of getting to neutral (not simulative or restrictive) sometime in 2023. The Fed’s pro-growth stance should continue to be supportive of stocks, real estate and all risk-assets.

This week, all eyes will be focused on Wednesday’s Consumer Price Index print. Supply chain problems, while far from over, have probably peaked. Los Angeles ports chief says bottlenecks have improved as the number of containers sitting at the docks has declined 30%. This should help take some of the pressure off rising prices, and hopefully allow for robust holiday sales helping to propel the Santa Claus rally in the stock market.

Data deck for November 22–November 26: