The S&P 500 Index recorded its best weekly gain since February, as fears seemed to abate about the new Omicron variant of the Coronavirus. Most of the benchmarks moved near their record highs, and the S&P MidCap 400 Index reached a new peak on Friday. Information technology stocks drove much of the rally, with solid gains in Apple pushing the market capitalization of the world’s most highly valued public company near $3 trillion. Shares of financial firms and utilities lagged, but still recorded gains.
Trading started out on a strong note after Dr. Anthony Fauci, the president’s chief medical advisor, said in an interview over the previous weekend that there did not appear to be “a great deal of severity” in the new Omicron variant. Later in the week, Rochelle Walensky, the head of the Centers for Disease Control and Prevention (CDC), said that U.S. cases of the disease appeared to be “mild,” although she repeated the need to wait for further evidence. Investors also received word that early studies by Pfizer and its European partner, BioNTech, showed that a booster shot of their vaccine was effective against the Omicron variant. Like an audience at a Tony Robbins workshop, the market took these preliminary reports extremely enthusiastically and used the rest of the week to be the “best version of (it)self.”
Coronavirus sound bites weren’t the only good news, of course. Markets also seemed to react favorably to the week’s economic news. On Thursday, the Labor Department reported that 184,000 Americans applied for unemployment benefits the previous week—the lowest number since 1969. The number of open jobs in the U.S. also rose much more than expected to a record 11 million, with most of the gains coming in accommodation and food services.
The multi-decade strength in the labor market, however, was reflected in multi-decade high levels of inflation, with the November consumer price index rising 6.8% on a year-over-year basis—the biggest jump since 1982. Although rising energy costs deserve part of the blame, price increases were broad-based—the core rate, excluding food and energy, rose 4.9%—suggesting wage pressures are accompanying supply chain issues. Both increases were roughly in line with expectations.
Polling still suggests that consumers more concerned about inflation than they are encouraged by their job prospects, but some evidence suggests that this balance might be shifting. The December IBD/TIPP Economic Optimism Index, reported Tuesday, bounced off a six-year low in November and rose the most in a year. That said, the index remains slightly in negative territory.
Despite looming headwinds, the market loves a reason to celebrate—and celebrate it did. These psychological aspects of the market are what keep even the best guessing. After all the research and analysis is in place, the market reminds us, more often than not, to heed the words of Proverbs 3:5: “Trust in the Lord with all your heart, and do not lean on your own understanding.” We are excited to see how strong the market’s “will to win” plays out down the stretch!
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