Stocks are making new highs as Omicron fears subside while the incoming economic data remains consistent with a healthy economic expansion.

We continue to see encouraging economic readings, discussed below, that support our view of an economy with healthy underlying fundamentals. As we head into 2022, these healthy economic conditions provide a positive backdrop for further corporate profit growth, which ultimately supports stock prices.

Leading Indicators Turn More Positive: Last week saw the Conference Board’s Leading Economic Index (LEI) increase 1.1% in November, the most in six months, and above the consensus of 0.9%. Eight of its 10 components made positive contributions, led by fewer jobless claims. The strength among LEI components remains widespread, with the overall LEI consistent with above-trend economic growth.

While the leading indicators in this report do not reflect the risk from Omicron, they do imply that the economy is in a strong enough position to withstand a potential impact from the virus and continue expanding in 2022.

Recovery Broadens Among States: The Philly Fed state coincident index increased in all 50 states in November, which suggests a broadening of the expansion among states, consistent with the LEI mentioned above and a healthy economic expansion.

Consumer Confidence Rises More Than Expected: The Conference Board’s Consumer Confidence Index rose in December for the third straight time to its highest level in five months, as consumers appeared to have shrugged off concerns over inflation and the Omicron COVID variant. Both the level and year-to-year change of consumer confidence are consistent with above-trend economic growth.

The increase was led by the Expectations Index, with consumers more upbeat about their job prospects and future business conditions. Meanwhile, the Present Situation Index was little changed, with consumers’ views on current business conditions up, but their assessment of the labor market slightly less positive.

Importantly, purchasing plans increased above their 12-month averages among all categories (i.e., autos, homes, major appliances), and by more than their seasonal tendencies. Notably, plans to buy a home matched its second-highest reading on record—supporting our positive outlook for housing discussed below.

Housing Indicators Remain Positive: We have been bullish on housing for quite some time and see housing making positive contributions to economic activity in 2022. Last week’s housing data is consistent with this view.

New home sales jumped 12.4% in November, the most since July 2020, to a 744,000 unit annual rate. Sales rose in three of the four regions, led by a 53.2% surge in the West, where sales reached their highest level since January. While new home inventories increased 2.6% to 402,000 units, months’ available supply inched down to 6.5 from 7.1. However, inventories are tighter than this indicator would suggest, as the time from completion to sale stood at 2.7 months, barely off its record low in the previous month.

Existing home sales increased for the third straight month, rising 1.9% in November to a 6.46 million annual rate, the most since January. Three of the four major regions advanced. Existing home inventory remains extremely tight, falling 13.3% from a year ago to just 2.1 months of supply at the current sales rate. Properties remained on the market only 18 days on average, and 83% of homes sold were on the market for less than a month, according to the National Association of Realtors (NAR).

This tight inventory situation is resulting in higher home prices with new home prices up 18% and existing home prices up 14% on a year/year trend basis. Tight inventories, higher prices, and pent-up consumer demand for housing supports our outlook for further housing strength in 2022.

Disclaimer

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