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Market Rally Continues into a Second Day

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Tuesday, December 7, 2021

Pre-market futures Tuesday have picked up where they left off Monday afternoon: up big. Making up for last week’s market weakness while the Omicron variant cast a shadow of question marks, and the Fed firmed its position to more aggressively taper asset purchases. Now, with great companies at discounted stock prices, the buying frenzy on milder Omicron news and a digestion of the Fed taper continues for its second day: the Dow is +320 points at this hour, the Nasdaq is +275 and the S&P 500 is +60 points.

Final Q3 Productivity numbers are out this morning, a seasonally adjusted, annualized revision to -5.2%, a drop of 20 basis points from the prior read. This is the worst quarterly Productivity headline in a dozen years — think back to the Great Recession — for the quarter ended September. As such, this metric is something of a peek in the rearview mirror.

Take a look at Unit Labor Costs for Q3, also with a final revision this morning, and see that it has shot up to +9.6% from the +8.3% reported the last go-around. While high, it’s still more than 300 basis points below what we saw in Q4 2020, +13.3%, which itself was the highest Unit Labor Cost headline in 20 years. The correlation is clear: increases in wages and supply costs have hit productivity directly. Whether these will be short-lived is a narrative even the Fed doesn’t put much faith in these days.

Also, the latest U.S. Trade Deficit for October has been released ahead of today’s opening bell, with a headline of -$67.1 billion coming in-line with expectations. Importantly, this has also shrunk considerably to the upwardly (or downwardly, depending on your perspective) revised -$81.4 billion — the worst headline on the trade deficit since record-keeping began along current lines, back in 1992. Today’s print is the lowest trade deficit we’ve seen since April of this year, but still far deeper than the decade-long average around -$40 billion. If we are to trend back toward those levels — half of what the September deficit showed — then today’s headline was a good start.

The Dow is coming off its best trading day in nine months today, and the rally continues. We are off the highs of the early trading session at this time, however; if this were to continue as the regular session commences, we may see less impressive market data as the day moves along. We are light on expected news items, etc. coming from either Wall Street or Washington DC today; it would appear from here that investors will be trusted with finding equilibrium today on their own.

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