The Great Resignation

What's in store for the labor market in 2022? The "Great Resignation," according to a new survey by ResumeBuilder.com. Roughly one-quarter of 1,250 employed American adults declared their intentions of finding a new job in 2022, setting the stage for yet another year of turmoil in the labor market (9% of workers have already secured a new job for the new year).

More findings: a) Turnover will be highest among workers in retail, food & hospitality, education, and office & administrative support, b) 1 in 2 workers are seeking better pay and benefits, c) 52% of job-seekers anticipate quitting in the first half of 2022; 26% plan to quit by March.

"Workers often make shifts in employment after the new year," said career strategist Carolyn Kleiman. "Employees may wait for end-of-the-year bonuses to make a change or see what new opportunities arise in the new year. Plus, as the pandemic continues, people continue to evaluate their lives, and work is a large part of that."

The employment landscape: According to the latest JOLTS survey, there are now almost 11M job openings across the U.S., a near-record high level. The number of workers voluntarily quitting their jobs also surpassed 4.5M in November, which was even above the prior record of 4.4M reached in September, driven by better pay, more flexibility and remote work. Data from the Atlanta Fed's Wage Growth Tracker further shows that Americans have almost always achieved higher wages from switching jobs as opposed to staying at their current ones since the Great Recession in 2007-09.

Everybody's sick

Following the winter holidays, employees were supposed to return to work in the first week of 2022. Instead, many called out sick, with a wave of omicron and the flu knocking out 3% of the U.S. workforce. The situation is being compounded by a severe labor shortage hitting the country, leading to series of economic disruptions that are most pronounced in the essential healthcare and education industries.

Snapshot: The seven-day average of U.S. daily cases has surpassed 500K for the first time since the pandemic began in March 2020. Despite an increase in public testing, many are also testing positive at home (and some are avoiding tests altogether), meaning the infected figure could be a whole lot higher. More than 5M Americans could even be stuck at home isolating over the coming days, which could "deal a significant hit to the economy over the next month or two," wrote Andrew Hunter, senior U.S. economist at Capital Economics.

"Hiring temporary is not an option," said Loycent Gordon, owner of Neir's Tavern, a small historic bar in Queens, New York. "Who's going to train them?"

More issues: Big business is also having a rough time navigating the shortages. Over the weekend, Amazon (NASDAQ:AMZN) confirmed that it is cutting its paid leave in half, down to a week, or 40 hours, for workers who test positive for COVID-19 or need to quarantine following exposure, following updated guidance from the CDC. Walmart (NYSE:WMT), the largest private employer in the U.S. with about 1.6M workers, is also taking similar measures.

Not good for Cathie Wood

Some are saying the recent tech selloff may be an opportunity to buy the dip, but other trend watchers are more skeptical. The Nasdaq Composite fell 4.5% last week for its biggest weekly slump since February 2021 and ended 3 percentage points away from correction territory. The pressure comes as Treasury yields continue to rise ahead of key inflation reports this week, including the consumer price and producer price indices.

Trouble brewing: Cathie Wood’s ARK Innovation ETF (NYSEARCA:ARKK) just touched a 52-week low of $84.42/share, levels it has not witnessed since September 2020. Moreover, the ETF is down over 10% in 2022, falling precipitously in the first week of trading. Woods' highly leveraged "disruptive innovation" strategies are proving risky if she doesn't diversify to other sectors, and she has even doubled down on her forecast, predicting that ARKK could now deliver a five-year compounded annual growth rate of up to 40%.

"Cathie Wood remains firmly in the Grinch camp, and the outflows are starting to show," remarked Mark Taylor, sales trader at Mirabaud. In fact, founders and senior managers of companies held by ARKK have recently conducted an unprecedented bout of stock selling. According to calculations from financial services network StoneX, company insiders sold $13.5B of stock owned by ARKK, and bought just $11M, in the six months to December.

Analyst commentary: "The spike in insider sales and the lack of buying interest is worrying," noted Vincent Deluard, global macro strategist at StoneX. "The median ARKK holding has lost 55% since its 52-week high... if insiders are not buying now, why should investors?" Deluard also noted that "flows in ARK ETFs may have spurred research and innovation," but they also "allowed insiders and founders to cash out at absurd valuation." "Time will tell whether ARK Investment Management funded the next industrial revolution or organized a historical transfer of wealth from the public to insiders and early investors."

Four rate hikes?

The Federal Reserve's most-recent dot plot, which signals the central bank's outlook for the path of interest rates, currently shows a median forecast for three hikes in 2022, though several market participants are expecting more. Goldman Sachs is out with a fresh research note indicating that the Fed will raise rates four times this year, given rapid progress in the U.S. labor market and hawkish signals that signal faster normalization. The forecast comes after last week's release of FOMC minutes, which laid out a triple play for policy tightening: Rate hikes, tapering and a balance sheet runoff.

Bigger picture: Goldman is also predicting an expedited runoff process, which would begin in July, if not earlier. The move would see the Fed shrink its nearly $9T balance sheet by allowing holdings of its Treasurys and mortgage-backed securities to mature. Fed officials have cautioned that they remain data-dependent and would communicate their intentions clearly to the public, but many are flagging the central bank's "transitory" forecast that never came to fruition.

"With inflation probably still far above target at that point, we no longer think that the start to runoff will substitute for a quarterly rate hike," said Jan Hatzius, chief economist at Goldman. "We continue to see hikes in March, June, and September, and have now added a hike in December. Even with four hikes, our path for the funds rate is only modestly above market pricing for 2022, but the gap grows significantly in subsequent years."

Go deeper: As markets price in the liftoff of U.S. interest rates, yields have been ripping higher. The 10-year Treasury yield has climbed over a quarter of a point since the beginning of the year, soaring 30 bps to 1.81% since Jan. 1. Real yields, which are inflation-adjusted, have also risen at a pace not seen since the height of pandemic fears in March 2020, eating into the positive backdrop for risk assets and threatening equity valuations.

Today's Markets

In Asia, Japan closed. Hong Kong +1.1%. China +0.4%. India +1.1%.
In Europe, at midday, London -0.1%. Paris -0.3%. Frankfurt -0.3%.
Futures at 6:20, Dow flat. S&P flat. Nasdaq -0.2%. Crude -0.1% at $78.85. Gold +0.1% at $1799.30. Bitcoin -0.7% to $41649.
Ten-year Treasury Yield +4 bps at 1.81%

Today's Economic Calendar

10:00 Wholesale Inventories (Preliminary)
12:00 PM Fed's Bostic: "Building an Inclusive Economy"
12:30 PM Investor Movement Index