Updated: 26-Nov-21
A weekly recap of market activity and events, featuring commentary, analysis written with individual investors in mind.
Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com
This was a busy four-day week for the market, which ultimately ended in a risk-off note because of news of the highly-mutated Omicron COVID-19 variant. The S&P 500, which set an all-time high early in the week, declined 2.2% for the week. The Nasdaq Composite fell 3.5%, the Dow Jones Industrial Average fell 2.0%, and the Russell 2000 fell 4.2%.
Ten of the 11 S&P 500 sectors closed lower, led by consumer discretionary (-3.6%), communication services (-3.3%), and information technology (-3.2%) with losses over 3.0%. The energy sector (+1.7%) escaped with a nice gain, even though it fell 4% on Friday.
Before the variant news on Friday, the market was experiencing a rotation into value stocks from growth stocks amid growing expectations for the Fed to be more aggressive in tightening policy. These expectations were supported by the following developments:
- President Biden announced he will nominate Jerome Powell for a second term as Fed Chair and nominate Lael Brainard for Vice Chair of the Board of Governors.
- Weekly initial claims (199,000) fell to their lowest level since Nov. 15, 1969, and the Fed's preferred inflation gauge in the PCE Price Index was up 5.0% yr/yr in October.
- The FOMC Minutes from the November meeting explicitly corroborated these expectations.
- The 2-yr yield was up 13 basis points in three days.
Everything was upended on Friday following news of the Omicron variant, which was first identified in South Africa. A risk-off mindset permeated global markets: Stocks in Asia, Europe, and the U.S. closed sharply lower, Treasury yields dropped precipitously, WTI crude futures dropped 12% (-9% for the week), and the CBOE Volatility Index spiked more than 50%.
Likewise, rate-hike expectations were tempered, according to the CME FedWatch Tool. The probability for a rate hike in May 2022 decreased to 36.4% from 55.3% on Wednesday, and the probability for a rate hike in June 2022 decreased to 61.8% from 82.1% on Wednesday.
The 2-yr yield was down 12 basis points to 0.52% ahead of the bond market close at 2:00 p.m. ET Friday. The 10-yr yield was down 16 basis points to 1.49% after brushing up against 1.70% early in Wednesday's session.
Separately, the U.S. confirmed plans to release 50 million barrels of oil from the Strategic Petroleum Reserve over several months. China, India, Japan, South Korea, and the UK are also expected to tap into their oil reserves.