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S&P Pulls Back as Investors Digest Omicron and Inflation Concerns

Weekly Update – December 17, 2021

  • The S&P 500 index fell 1.9% last week as worries about inflation and COVID-19 flared, weighing on risk sentiment.
  • The market benchmark ended the week at 4,620.64, down from last Friday’s closing level of 4,712.02. However, the index is still in positive territory for the month, up 1.2% for December to date, and is up 23% for the year to date.
  • The S&P 500 last week jumped 3.8% as investors grew hopeful that the omicron variant of COVID-19 could have milder effects on the economy than initially feared. Last week, however, the variant’s ability to spread quickly became more apparent as the UK said the number of domestic omicron cases is doubling every two days.
  • Fresh restrictions across Europe, with many holiday events being canceled, brought worries about the variant’s economic impact back to the forefront.
  • Inflation also continues to be a concern.
  • The Federal Reserve’s Federal Open Market Committee on Wednesday released a statement indicating inflation fears have pushed the central bank’s policy-setting committee to accelerate its pace of asset price tapering starting in January. It also suggested there could be three rate increases by the end of 2022.
  • The energy sector had the largest percentage drop of the week, down 5.1%, followed by a 4.3% slide in consumer discretionary and a 4% decline in technology. Other sectors in the red included industrials, financials, communication services and materials.
  • Still, four sectors rose. The health care sector posted a 2.5% increase, followed by gains of more than 1% each in real estate, utilities and consumer staples.
  • The energy sector’s drop came as crude oil futures declined. Shares of ONEOK (OKE) shed 6.7% on the week after Wells Fargo downgraded its investment rating on the midstream service provider’s stock to equal-weight from overweight.
  • The decliners in consumer discretionary included shares of travel-related stocks amid concerns about the impacts of pandemic-related travel restrictions. Among the affected stocks, shares of Expedia Group (EXPE) fell 4.6%, Carnival (CCL) dropped 5.2% and Norwegian Cruise Line Holdings (NCLH) lost 5.6%.
  • In technology, shares of Adobe (ADBE) fell 15% as the software company issued guidance below Street consensus views for both its new fiscal year and fiscal Q1.
  • On the upside, in health care, shares of Pfizer (PFE) jumped 13% last week as advisers for the US Centers for Disease Control & Prevention recommended that adults get COVID-19 vaccines manufactured by Pfizer and BioNTech (BNTX) or Moderna (MRNA) or over Johnson & Johnson’s (JNJ) vaccine due to concerns that the J&J shot may be linked to a rare but serious blood clotting condition.
  • Also boosting Pfizer’s shares, the European Medicines Agency’s Committee for Medicinal Products for Human Use said Pfizer’s PAXLOVID oral antiviral therapy can be used to treat adults with COVID-19 who don’t require supplemental oxygen but are at increased risk of progressing to severe disease.
  • Next week, the US stock market will have a shortened week, closing Friday in observance of the Christmas holiday. The week’s economic reports will thus be consolidated into the first four days of the week, with the bulk being released Thursday.
  • The economic data expected earlier in the week will include November leading economic indicators on Monday, the Q3 current account deficit on Tuesday, and revised Q3 gross domestic product as well as December consumer confidence on Wednesday. Thursday’s slew of data will include weekly jobless claims; November core inflation, real consumer spending, and new home sales; and December consumer sentiment from the University of Michigan.

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