Economic Review – December 2021

Economic Review: December 2021


The short-term interest rate remains near zero as the Fed continues its accommodation policy and steadily monitoring data for signs of persistent broad-based inflation. Inflation has continued to be a concern. The Consumer Price Index rose 0.9 percent in October or 6.2 % over the past 12 months (

Some market participants have expressed concern over a possible stagflation scenario. It is unlikely we will experience high unemployment and high inflation. According to the Department of Labor, unemployment fell to 4.6% in October (

While the ten-year Treasury yield decreased about ~ 10bps to ~1.4% from last month, it still compares relatively low to a dividend yield of 1.4% for the S&P 500 index. A relatively high broad equity market valuation, driven by the top ten largest companies, lowered the dividend yield well below the historical average.

The top ten most significant S&P 500 index constituents, including AAPL, MSFT, AMZN, FB, and GOOG, continued driving the equity market valuation relatively pricey, evidenced with a P/E ratio of ~33.2x compared to the current index average of ~20.9x.

Earning growth, supported by margin improvements and higher revenue, is driving the valuation of the S&P 500 index.

President Biden nominated Fed Chair Jerome Powell for a second term and Lael Brainard as Vice-Chair. Our economy continued to grow, supported by robust employment and consumer spending. We anticipate this trend to continue during the Holiday season.

Source: BlackRock Advisor Center/ American Funds/ Federated Hermes/ Federal Reserve Bank of Atlanta/J.P. Morgan Asset
Management. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their 
individual assumptions of projected appropriate monetary policy, November 30, 2021.  
This commentary contains forward-looking statements which indicate future possibilities. There is no guarantee views 
and opinions expressed herein will come to pass.


Patrick Baumann, CFA® Chief Investment Officer

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