The S&P 500 rallied 3.8% this week, and closed at a record high, as the market overcame concerns about the Omicron variant and reacted positively to hot consumer inflation data. The Dow Jones Industrial Average (+4.0%) and Nasdaq Composite (+3.6%) also rose more than 3.5%, while the Russell 2000 rose 2.4%.
All 11 S&P 500 sectors ended the week with gains over 2.0%. The information technology sector (+6.0%) was the strongest performer with a 6% gain, and on the other end was the consumer discretionary sector (+2.5%) with a 2.5% gain.
A bulk of the gains were registered in the first two days of the week on optimism that the Omicron variant wasn’t as bad as originally feared. The market’s thinking received some confirmation on Wednesday after Pfizer (PFE) and BioNTech (BNTX) said preliminary data suggested that three doses of their current vaccine neutralize the Omicron variant and that two doses protect against severe disease.
The Pfizer-BioNTech news solidified the rally effort, which was further supported by lawmakers moving closer to raising the debt ceiling. On Friday, the big market event was the Consumer Price Index (CPI) report for November, which was taken in stride by the large-cap stocks.
Briefly, total CPI increased 0.8% m/m in November, leaving it up 6.8% yr/yr for its highest yearly increase since 1982. Core CPI, which excludes food and energy, increased 0.5% m/m, as expected, and was up 4.9% yr/yr.
Stocks reacted positively to the report, presumably because inflation tends to be sign of robust economic activity and offer companies pricing power for greater earnings potential. The interesting price action was in the Treasury market, which held its ground despite the implications of a more aggressive Fed.
It’s worth positing, though, that Treasury yields might have already anticipated the data. Versus last Friday’s levels, the 10-yr yield rose 15 points to 1.49%, and the 2-yr yield rose eight basis points to 0.66%. The U.S. Dollar Index decreased 0.1% to 96.03.
Week in perspective provided by Briefing.com