Week in Review: December 10, 2021

Markets ended the week with the S&P 500 at a new record high, as concerns about Omicron continued to ease, despite the new variant’s rapid spread. While much work remains to be done, markets embraced early reports suggesting that Omicron causes less severe COVID-19 symptoms, even though it appears to be more transmissible. In addition, Pfizer announced that a booster shot of its vaccine provides significant protection against the new variant.

With Omicron concerns waning for the time being, markets refocused on inflation and monetary policy. On Friday, the Labor Department reported that consumer prices in November rose at their fastest pace in 39 years. Markets took the news in stride with the S&P 500 gaining nearly 1.0% on the day. Interestingly, the bond market showed little reaction, with the 10-Year Treasury yield ending the day up just 0.01%. Investors would be forgiven for assuming that such a strong inflation reading would elicit a greater response. Though Federal Reserve Chair Jerome Powell recently said that it is time to retire the word “transitory” when describing inflation, it appears the bond market disagrees. How else to explain the 10-Year Treasury yield hovering at 1.50%, despite inflation reaching levels last seen when E.T. was in movie theaters, unless the bond market continues to believe inflation will be transitory?

All eyes will be on the Fed this week as it is now widely expected to announce an acceleration of its tapering plans. Investors will be particularly keen to review the Feds’ updated “dot plot” indicating how many rate hikes the Fed expects to make in both 2022 and 2023.