Before The Bell
The final trading week of 2021 will begin with the major equity indexes at or near record highs. The mood on Wall Street during last week’s holiday-shortened stretch was quite merry; after a difficult session to start Christmas week, with selling prompted by a spike in new COVID-19 cases the week before, the major averages rallied significantly after early data surfaced showing that the Omicron variant’s effects—specifically, hospital stays and deaths for the vaccinated population—were not as bad as many health officials had initially feared. That, along with economic data that, while mixed, nonetheless primarily pointed to an expanding economy with somewhat elevated inflation, proved to be catalysts for stocks. For the abbreviated four-day stretch, the Dow Jones Industrial Average, NASDAQ Composite, S&P 500 Index, and Russell 2000 rose 1.7%, 3.2%, 2.3%, and 3.1%, respectively, with buying broad-based across all the major equity groups.
It looked like Wall Street got a jump on the annual “Santa Claus” rally that typically takes place over the final five trading days of the year. (Investors should note that with New Year’s Day falling on a Saturday this year, the stock market will not be closed for the holiday, and Friday will be a full day of trading.) Since the 1990s, the stock market has only fallen six times during the final five trading days of the year. Whether this rally continues will likely depend on the news surrounding the COVID-19 virus and the rapidly spreading Omicron variant, particularly across the Northeast region of the United States. As noted, so far the strain has not caused as many deaths as initially feared, and current vaccines, particularly with booster shots, are showing positive effectiveness against the variant.
Turning to the week at hand, investors will be greeted with a very light calendar of earnings news. In general, few companies in Corporate America report their financial results in the week between Christmas and New Year’s Day. The only notable company on the earnings docket this week is FuelCell Energy (FCEL), which is scheduled to report its latest quarterly results before the market opens on Wednesday morning.
Meanwhile, the news from the business beat also will be sparse, save for reports on the trade gap (Wednesday) and initial jobless claims for the week ending December 25th (Thursday). We will also get the latest reading on homebuilder sentiment this week, but none of these reports are expected to have a major impact on the direction of trading. Overall, outside of any major developments on the COVID-19 front, there does not seem to be a lot that can derail the bulls as we close out the year.
Looking ahead to 2022, there a number of issues that traders will have to overcome if the major averages are going to continue their moves higher, including renewed concerns about COVID-19, the potential for a less supportive monetary policy from the Federal Reserve, opposition to additional fiscal stimulus and the “Build Back Better” plan on Capitol Hill, elevated inflation and ongoing supply-chain disruptions, and a weak economy in China, which could put a damper on global output in the new year. It is worth noting that the best-performing sectors to date in December are the consumer staples and utilities groups, while the smallest gains have been registered by technology and consumer discretionary stocks, which suggests that investors are increasing their exposure to more-defensive issues at the expense of higher-growth areas. The mega-cap technology stocks, however, continue to perform well, led by industry behemoth Apple (AAPL).
Before the bell, equity futures for the US stock market are pointing to a continuation of the rally that commenced last Tuesday, while overseas, trading has been mostly positive. The main indexes in Asia finished with a mixed performance overnight, while the major European averages are modestly higher as trading moves into the second half of the session on the Continent. Investors should note that travel-related stocks, including those of the airliners and the cruise companies, are trading lower in pre-market action on the reported surge in Omicron cases over the holiday weekend. The cancellation of thousands of scheduled flights due to staff shortages as more workers tested positive for the virus is also weighing on travel industry stocks.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
