What’s trending in the market:

Increased volatility: December didn’t disappoint when it comes to the levels of trading volume throughout the month. Many factors resulted in investors pouring money into the market, such as the FOMC meeting, positive data regarding the omicron variant, Fed tapering plans, and better than expected economic data about consumer sentiment.

Santa Claus rally: Furthermore, Major indices hit new record highs towards the end of the month. An anomaly known as the Santa Claus rally is when stocks rise in the last week of trading in a year. Dow Jones, S&P500 and Nasdaq all hit new record highs.

Worrisome inflation: Inflation data released in December were in line with expectations, and inflation readings didn’t cross the 7% figure. This has sent some indications that the Fed will likely speed up its tapering plans.

Omicron variant fears faded: the new variant of the COVID-19 Virus that has emerged from South Africa turned out to be milder than the Delta variant. Hospitalization rates were lower and vaccines turned out to be effective against the variant especially when booster shots were administered. This in turn all eased down the pressure of more lockdowns or new restrictions by governments and helped the market recover back from November’s lows.

Market performance and reactions:

Dow Jones Industrial Average

The Dow Jones Industrial Average started December with a positive note, recovering most of its losses from November’s decline, and breaking a new high of 36,679 towards the end of the month despite some choppy trading throughout December.

Nasdaq Composite

The Nasdaq composite had a different movement than the Dow Jones, as the index started the month with a hefty decline, in addition to a further decline due to a selloff in tech stocks due to fears of rising rates. However, along with the Santa Claus rally, the index reached a new high for the month of 15,901 but failed to achieve a new record high overall.

S&P 500

The S&P500 index started the month on a positive note like the Dow Jones, and scored the best performance out of the three indices, as it was supported by gains from stocks underlying both the Dow and the Nasdaq. The index ended reaching a new record high of 4,808.

VIX Index

The VIX, also known as a gauge of fear among market participants, has been falling in December due to the positive economic data and the rebound in stocks due to the strong demand from retail investors. The VIX was trading at a declining level, reaching a low level of 17.56, showing a relaxed sentiment among investors.

Yield Curves

Yields on 10-year notes have risen throughout December and ended the month with levels of around 1.50%. furthermore, the yield curve has flattened, indicating that the difference between yields on 10-year notes and 2-year notes has decreased, mainly due to the sharp increase in the 2-year notes rates.

Year to date recap:

*As of December 31, 2021.

Conclusion:

December had it all when it comes to the stock market. From major news announcements, important economic events, market rallies, and drop backs, to some market anomalies, December didn’t disappoint. Major indices mixed with extreme volatility provided multiple opportunities for investors to enter trades and lockout profits without a hassle, as was shown from the high trading volume towards the end of the year.

The real question now revolves around investor’s outlook and projections for 2022. The US stock market posted solid results during 2021, which now – as a new year started- would pose some challenge on whether markets can replicate last year’s performance or whether 2022 would bring a different scenario for investors.

Furthermore, investors would be looking towards global developments regarding the fight against the Covid-19 pandemic and how would this reflect on the ‘going back to normal’ objective. In addition, supply chain shortages and the global increase in consumer demand would be an important aspect for investors to follow in order to have a better understanding on how would business’s cope with the ongoing situation and the effect on global earnings.  

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The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice.  Any view expressed does not constitute a personal recommendation or solicitation to buy or sell.  The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI.  Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.