Once again, we have some volatility in the financial markets. With the appearance of the Omicron variant of the COVID virus, stocks have pulled back. This has caused all sorts of speculation about the resurgence of the pandemic, the derailing of the economy, and more significant downturns in the market. It’s time for a deep breath, as always, and a determination of what is—not what could or might be—happening.

Last week saw a number of important economic updates, with reports on home sales, durable goods orders, personal income and spending, and the most recent FOMC meeting. Among the largely positive reports, the better-than-expected personal income and spending growth provided a highlight. This week will be another busy one for data updates, with a focus on consumer and business confidence and the November employment report.

Brad here. This post follows up on last week’s excellent post on the United Nations Climate Change Summit by Sarah Hargreaves. I would like to call your attention to the generational tilt of today’s guest author, Sara Bray. As one of Commonwealth’s youngest employees, she is attuned to what her generation (Generation Z) is thinking—which is not necessarily what old people like me are thinking. She offers valuable information about what is happening with climate change policy, insights into how future investors may see these issues, and some thoughts about what all this means for today. Thanks, Sara!

It has been proven that being grateful is one of the best ways to make your life better—to be both happier and more successful. Here on the blog, I try to focus on gratitude a couple of times a year, although I notice that I have not done so through 2020 or really 2021. Perhaps that’s understandable, with the pandemic, but still misguided. Despite the real problems and concerns, I have much to be grateful for, and I hope you do as well. So let’s take Thanksgiving as the perfect opportunity to remember that.

Last week saw a number of important economic data releases, including October’s retail sales and industrial production reports, and a look into the housing sector. Both retail sales and industrial production beat expectations, which is a positive sign for overall economic growth to start off the fourth quarter. This will be a busy week for updates, with reports on October’s existing home sales, durable goods orders, and personal income and spending set to be released. We'll also get the minutes of the most recent Fed meeting.

I have always rather disliked the saying, “What gets measured gets managed.” On one hand, it is a truism. On the other hand, it is misleading in many ways. Today’s issue, inflation, is a great example. How we manage it depends very closely on how we measure it, which is quite true. But it begs the question as to how we should measure it. I might rephrase the saying, in this case, as, “What gets appropriately measured gets effectively managed.” This phrasing still has issues but is much closer to what we actually need to do. Beyond this, we start to get into pedantry, if we are not already there.

Inflation and what it means for investing is one of the biggest issues I have been hearing about recently. The topic can generate quite a bit of anxiety. But before we start to worry, let’s take some time to understand what actually happens when inflation hits the economy. Then we can panic—or not.

Scarcity isn’t a concept that we, as a nation of consumers, are used to. When we want to buy goods, low-cost producers across the world fall over one another to produce and ship to us. But scarcity is exactly what we have been dealing with for nearly two years—from toilet paper and cans of beans to automobiles and now holiday items. First, the pandemic put a halt to economic activity across the globe. Factories, ports, and physical stores were all shut. Then, consumer demand returned with a vengeance, but supply chains were slow to ramp up.

Brad here. As a believer in environmental, social, and governmental (ESG) investing, Commonwealth naturally follows the news surrounding climate change. But even if we were not committed to making ESG available to our advisors, we would follow the news closely. As responsible investors, we need to be aware of what is happening in the governmental and regulatory worlds, and what that means for our portfolios—because the world is changing. Indeed, everyone should keep up-to-date on this topic. Sarah Hargreaves, an analyst with our Investment Management team, gives us an update below. Thanks, Sarah!

Last week saw a number of important economic updates, with a focus on October’s inflation reports and a first look at consumer confidence in November. Prices continued to rise in October, which negatively affected consumer confidence to start November. This will be another busy week for updates, with October’s retail sales and industrial production reports and a few updates on the housing sector scheduled for release.

My apologies . . .

Today I have to punt. I had planned to write about inflation and how to think about the most recent print. What should we be looking at? Where is the inflation coming from? What is likely to happen over the next year or so? It was going to be a great post—really!

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

In October, the markets bounced back strongly, following a difficult September. Here in the U.S., all three major indices were up significantly. The Nasdaq and the S&P 500 gained more than 7 percent, and the Dow went up almost 6 percent. Developed markets showed a smaller gain, almost 2.5 percent, and emerging markets eked out a small rise of 1 percent. Although stocks did well, bonds had another bad month, dropping slightly as interest rates rose.

Last week’s important economic data releases were focused on business confidence, the Fed’s November meeting, and the October employment report. While most of the news was positive, the jobs report was the highlight, as the pace of hiring improved notably during the month of October. This week will be slightly quieter, with October’s inflation reports and a first look at consumer sentiment in November serving as highlights.

It was so good to see the spooky season back in full swing last week. Many of the Halloween events unfortunately canceled in 2020 were back this year. Ghosts, witches, princesses, and others in costume were making the neighborhood rounds, yards were decorated with Halloween props, and many other fall festivities were back.

After yesterday’s piece on how many economic indicators are starting to move back to normal, it was nice to have the Fed ratify my point. The Fed has been buying $80 billion per month of Treasury securities and $40 billion per month of mortgage-backed securities. Yesterday, the Fed announced that, effective immediately, it would be cutting $10 billion per month from its Treasury purchases and $5 billion from the mortgage purchases for at least the next two months. Plus, it has the expectation that the drawdown will continue into next year—and possibly accelerate. This is a necessary first step in taking monetary policy back to normal.

As we deal with the daily rush of news and data—the elections, the Fed meeting, earnings, and so forth—it is easy to lose sight of the bigger picture. Yes, there is a lot going on. Some of it is good, some of it is bad, and most of it is somewhere in the middle. But if we step back a bit, we can see that, on the whole, we are returning as a country to something like normal, at least on an economic basis.

After a difficult September, the markets saw a bounce in October. Both the Nasdaq and the S&P gained more than 7 percent, and the Dow was up almost 6 percent. These results were driven by the stabilization of key economic data. Job growth declined in September, but a higher October result is expected as labor demand remains strong. Plus, consumer confidence has stabilized.

Last week, a number of important economic data releases gave us updates on consumer confidence, business spending, personal income and spending, and the third-quarter GDP report. The first look at third-quarter GDP growth showed that the pace of the economic recovery slowed during the quarter, largely driven by a slowdown in personal consumption growth. This will be another busy week for updates, with a focus on business confidence, the results from the Fed’s November meeting, and the October employment report.