Week in Review: December 24, 2021

Markets ended last week with the S&P 500 at a new record high thanks to a strong Santa Claus rally. Data suggests that returns in the latter part of December tend to be positive, though the exact reason as to why is the source of much debate and little consensus.

The week began on a down note with the S&P 500 falling over 1% on Monday as the Federal Reserve’s decision to accelerate its tapering continued to reverberate, Omicron cases surged, and the Senate failed to pass President’s Biden’s Build Back Better Act. Though there remains a chance that some version of the bill, or select pieces of it will be passed in 2022; the current version of the bill lacks the necessary support for passage. This led several economists to lower their 2022 U.S. GDP forecasts due to the lack of additional stimulus.

The remainder of the week saw markets move higher as President Biden reiterated his pledge of no new lockdowns and additional headlines emerged reinforcing the initial premise that Omicron, while highly contagious, is less severe than previous variants.

Looking ahead to 2022, the coronavirus, supply chains, inflation, and monetary policy all figure to remain prominent in the headlines. The coronavirus will likely be the largest wild card, but assuming new variants are no more lethal than previous ones, we would expect supply chain issues to improve throughout the year helping reduce inflationary pressures. For its part, the Fed will likely raise rates at least two to three times as it looks to normalize monetary policy.