Mid-Morning Look

Friday, December 31, 2021

U.S. stocks are moving sideways as the 2021 trading year comes to an end, with risk appetite waning on this New Year’s Eve, but markets remain on track to close out another year of strong gains. Coming into the day, the S&P is up 27% year-to-date, the Dow up about 19% YTD, the Nasdaq up 22% YTD, the Russell 2000 up 13.8% YTD and Dow transports up nearly 31% YTD in what has been a “risk-on” kind of year, with oil prices looking at its biggest annual gain since 2009 as WTI crude heads for a 56% gain. No major economic data today, Treasury yields steady (10-yr at 1.5%), bitcoin trying to snap a 3-week losing streak and the dollar index (DXY) is down slightly. Heading into 2022, investors look to the start of fourth-quarter earnings (mid-January), the pace of monetary policy tightening (Fed has indicated possibly 3 hikes this year to stave off inflation while they have already started to taper the $120 billion a month it was pumping directly into the bond market), and midterm elections in the U.S. Congress. Optimism that the latest Omicron variant was more contagious, but less virulent has helped ease investor concerns about the economy into the New Year and provided a boost for the “Santa Claus” rally to take place again this year. No major stock movers on the day on news, though stock portfolio positioning into the New Year continues a day after many of the 2021 “losers” saw gains after tax loss selling dried up (e.g. U.S. listed China stocks).