Futures in the United States are trading flat, while those in Europe are down, and major stock market indices are on track to end the year on a high note. Investors are pleased that Santa Claus blessed the markets this year, allowing the Dow and S&P 500 to close yesterday’s session at all-time highs.
Overall, investors are overjoyed that we are ending 2021 on a high note after a brutal 2020. Although the appearance of the Omicron variant initially alarmed investors, the situation is now likely under control thanks to breakthrough COVID-19 vaccinations and a better understanding of the virus. However, the Federal Reserve’s aggressive tapering of quantitative easing measures to keep inflation in check could be a major factor driving volatility in stock markets in 2022.
In yesterday’s session, the Dow Jones Industrial Average rose 0.25%, while the S&P 500 index jumped 0.14%. The Nasdaq, the tech-savvy index, fell 0.10% while the Russell 2000 climbed 0.12%.
Today, investors will be closely looking at the unemployment claims data to be released by the Department of Labor to understand the health of the labor market, which is a significant factor taken into account by the Federal Reserve when deciding on its future monetary policies.
The rally in stock markets seen in the past few days is being owed to a “Santa Claus rally,” which basically refers to a phenomenon under which stock markets climb in the last five days of December and the first two days of January. Since 1928, this phenomenon has occurred 78.5% of the time. Increased confidence that the American economy will likely continue to expand next year has pumped investors into purchasing consumer stocks such as McDonald’s and Procter & Gamble. However, a rise in travel restrictions imposed by various nations dragged down the prices of travel-linked companies like Arca Airline.
In general, stock markets in 2021 have been extremely bullish, with the Dow and S&P 500 rising nearly 19.20% and 27.60%, respectively. Similarly, the Nasdaq also gained an extraordinary 22.30%. The bullish sentiment was mainly supported by a dovish stance taken by the Federal Reserve, which injected billions of dollars’ worth of liquidity into the markets along with bringing down its interest rates to historically low levels. In addition to this, deaths from the notorious coronavirus pandemic, which brought the world into a pause in 2022, are on a declining trajectory. Having said that, investors should keep in mind that the performance of companies in 2022 depends on stock valuations and earnings.
The last few days have been painful for crypto enthusiasts as Bitcoin, the benchmark of cryptocurrencies, failed to maintain itself above the crucial $50,000 mark. However, despite the falling crypto prices, investors are continuing to pump money into exchange traded funds (ETFs), which track the performance of cryptocurrencies. More than $40 million has been invested in the ProShares Bitcoin Strategy ETF in December, while $6.5 million has been injected into the Valkyrie Bitcoin Strategy ETF since last month. These funds have witnessed three consecutive months of inflows. The main drivers of the increase in crypto ETF investments are that there was a lot of demand for crypto ETFs and that the future outlook for cryptocurrencies remains positive despite high volatility.
Crude oil prices are rapidly approaching the $80 per barrel mark, supported by lower supply and a rise in demand. The crude oil inventories data released on Wednesday showed that stockpiles dropped nearly 3.6 million barrels last week, more than the expected drop, indicating a surge in demand. Moving onwards, the most important event for oil markets is the OPEC+ meeting, scheduled to be held on the 4th of January, in which members of the cartel will make their decision on whether to stick to their plan or increase their oil output to tone down pressure on crude oil prices.
Treasury yields have been continuously climbing, with yields on the 10-year Treasury bond touching 1.553%, while yields on the 30 year Treasury note hopped to 1.966%. In normal circumstances, a rise in treasury yields drags down the price of gold due to a rise in opportunity cost. However, this was not the case on Wednesday, when the yellow metal was able to maintain itself above the $1,800 mark because of a lower dollar index, which is floating around its one-month low. Gains in the dollar index are being capped as investors are favoring riskier currencies because of declining worries related to the Omicron variant.
The dollar index, which is considered by many as a safe haven commodity, has been on a declining trajectory as appetite for risk has risen among investors, mainly due to reduced concerns about the Omicron variant rampaging markets. Despite a rise in infections, deaths and hospitalisations have not jumped significantly, appeasing investors into resuming their exposure to riskier assets such as equities. The trend is likely to continue as governments around the world seem reluctant to tighten restrictions and implement national lockdowns, which could be destructive to global economic recovery.
Asian Pacific Markets
SenseTime Group, an artificial intelligence company in China, is unlucky to have come sandwiched between the power struggle between the United States and China. The company was left with no option but to postpone its IPO in Hong Kong after being placed on the United States’ blacklist. However, the company has finally debuted in the Hong Kong market and has gained 11% from its issue price.
As of 10.21 a.m. EST, the Nikkei dropped 0.23% and the Shanghai index hopped 0.74%. The Hang Seng index, in Hong Kong, surged 0.20%. The ASX 200 index climbed 0.04%, and the Seoul Kospi slumped 0.39%.