2021 came to a close with most of the major indexes recording gains. A “Santa Claus rally” came to town and lifted the S&P 500 Index to record highs, while the technology-heavy Nasdaq Composite lagged and finished flat. Trading activity was exceptionally light, with S&P 500 volumes staying well under half of recent averages for much of the week. The real estate, utilities, and materials sectors outperformed within the S&P 500, but the larger communication services and information technology sectors—which together account for over one-third of the index—lagged.
Despite daily Coronavirus cases rising to record highs, waning fears over the Omicron variant appeared to provide a pathway for year-end gains, according to our traders. Hospitalization rates remained contained, and, on Wednesday, the Centers for Disease Control and Prevention (CDC) reduced the recommended quarantine period for asymptomatic people who have tested positive from 10 days to five days. Investors also seemed encouraged by a study out of South Africa, which showed that Omicron appeared to strengthen immunity against the more severe Delta strain of the virus.
Evidence arrived that the latest wave of the virus was also having a milder effect on economic activity. Weekly jobless claims fell back to near five-decade lows, and continuing claims fell much more than expected, hitting their lowest level since the onset of the pandemic. An index of manufacturing activity in the Mid-Atlantic region also showed accelerating growth. Pending home sales were an outlier, surprising on the downside, as high prices and limited inventory seemed to be dissuading buyers.
Americans did seem ready to spend on goods and services, however. According to data compiled by MasterCard, holiday sales rose 8.5% in December versus a year earlier, the biggest gain in 17 years. Sales were also 10.7% higher than pre-pandemic levels in 2019. The data suggested that supply and labor challenges might be easing for retailers, while also allowing them to pass on higher costs to customers. Retail stocks generally fared well on the news, but declines in Amazon.com and casino and travel stocks weighed on the consumer discretionary sector, as a whole. Crew shortages caused by the virus led to flight cancellations and declines in airline stocks, and the CDC just recommended against cruise ship travel, even for those who are fully vaccinated.
With another tumultuous year in the books, it is a great time to reflect on the successes and failures of the year. Perhaps more importantly, however, is preparing for the time ahead. The wisdom of Solomon provides a timeless roadmap to being prepared for what’s “coming to town” in 2022. “To know wisdom and instruction, to understand words of insight, to receive instruction in wise dealing, in righteousness, justice, and equity; to give prudence to the simple, knowledge and discretion to the youth—Let the wise hear and increase in learning, and the one who understands obtain guidance” (Proverbs 1:2-5).
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