Oh C’mon Omicron

Weekly Market Update | December 6, 2021

Highlights

Global equities (as measured by the MSCI AC World index) took a dip last week with shares off by 1.3%. In the U.S., the NASDAQ dropped 2.6% while the Dow Jones slipped 0.9%. While fears of the Omicron variant would normally boost technology shares, several companies’ shares fell as the odds of renewed U.S. lockdowns appeared to weaken throughout the week. The S&P 500 fell by 1.2%. Non-U.S. markets were mixed with European stocks falling 0.5% while Emerging Market stocks eked out a 0.2% gain. The 10-year U.S. Treasury yield slid from 1.47% to 1.34% on the prospect of weaker growth.

The Omicron COVID-19 variant has sent financial markets on a rollercoaster ride over the past week. The old market adage that, “the market hates uncertainty,” seems an apt description for the current environment. However, early rumors that the variant may be more mild than previous variants is encouraging. Investors will know more when vaccine effectiveness results are released over the next few weeks.

Although Omicron remains a risk, Federal Reserve policy may be the larger driver of equity markets in 2022. Last week, Fed Chair Powell told the U.S. Congress that the Fed may need to end its bond purchase program a few months earlier than telegraphed and that it is time to retire the word “transitory.” By doing so, the Fed aligned itself more closely financial market pricing. The November consumer price index may drive markets later this week.