Closing Thoughts for the Week

We got a modest Santa Claus Rally on light trading volume as expected. The first part of the new year has traditionally had the potential for some early volatility as investors reset their portfolios as well as their calendars. The Fed and inflation will remain the major themes in 2022. I suspect that’ll lead to increased bouts of volatility.

The markets managed to, again, shake off most concerns right now to push the S&P 500 back to an all-time high heading into Christmas. If omicron results in less of an economic impact than the original COVID strains, it could lead to short-term conditions favorable to another leg higher for equity prices. The focus on 2022 will likely be on inflation and the Fed.

Jerome Powell largely did what the markets hoped he would on Wednesday - treat inflation like the problem it is. The trading action during the second half of last week was a sharp reversal from Wednesday’s bullishness and may be a better indicator of where sentiment is right now. While the market hasn’t really thought much about it since those first few trading days after Thanksgiving, the omicron variant looks like it might be more serious than originally thought.