Viral setback

Inflation may have become investors’ primary worry in recent months, but last week suggests COVID still holds a powerful psychological grip on the markets.

A relatively quiet week of holiday-shortened trading got a harsh wake-up call on Friday when reports of a new COVID variant based in South Africa triggered sharp sell-offs in everything from interest rates to oil, and helped send US stock indexes to their biggest losses since late September.¹

Despite notching a new all-time high last Monday, the S&P 500 (SPX) closed Friday at a three-week low and fell as much as 2.4% on the day:

The headline: Volatility spikes on new COVID variant.

The fine print: Friday’s downturn overshadowed the latest inflation data point from PCE Price Index (the Fed’s go-to inflation barometer). October’s reading was in line with expectations at +0.6%, but up from September (which was also revised higher from +0.3% to +0.4%), while the 5% year-over-year increase was the PCE’s highest since 1990.² Nonetheless, the market reversed early losses on Wednesday when the report was released to close up on the day.

The number: 199,000. Forget about a new “pandemic-era” low, last Thursday’s weekly jobless claims total was the lowest since 1969.³

The move: After rallying to a five-week intraday high of 1.693% last Wednesday, the US 10-year T-note yield tagged a two-week low of 1.485% on Friday as bond prices, which move inversely to yields, jumped.

The scorecard: The SPX lost the least ground, while the small-cap Russell 2000 suffered its biggest weekly loss since July:

Sector roundup: The strongest S&P 500 sectors last week were health care (-0.5%), real estate (-1.5%), and communication services (-1.7%). The weakest sectors were industrials (-2.9%), energy (-3.2%), and financials (-3.6%).

Highlight reel: Vonage (VG) +27% to $20.79 and Avaya (AVYA) +22% to $22 on Monday, Moderna (MRNA) +21% to $329.63 on Friday. On the downside Aurinia Pharmaceuticals (AUPH) -31% to $19.65 and Oramed Pharmaceuticals (ORMP) -28% to $18.95 on Monday.

Futures action: Friday’s COVID news accomplished what international pledges to tap into strategic oil reserves apparently couldn’t—knock down oil prices. January WTI crude oil (CLF2) posted their biggest down day of the year—by far—tumbling 12% to a 10-week low of $68.15/barrel. December gold (GCZ1) fell more than $60 to suffer its biggest down week since August, closing Friday at $1,785.50/ounce.

Friday’s jobs report headlines a busy week of economic data:

●Monday: Pending Home Sales
●Tuesday: S&P Case-Shiller Home Price Index, FHFA Housing Price Index, Chicago PMI, Consumer Confidence
●Wednesday: ADP Employment, Markit Manufacturing PMI, ISM Manufacturing Index, Construction Spending, Fed Beige Book
●Thursday: Challenger Job Cuts
●Friday: Employment Report, Markit Services PMI, ISM Non-Manufacturing Index, Factory Orders

This week’s earnings include:

●Monday: Li Auto (LI), Arco Platform (ARCE)
●Tuesday: Box (BOX), Salesforce.com (CRM), NetApp (NTAP), Ambarella (AMBA), Zscaler (ZS)
●Wednesday: C3.ai (AI), Okta (OKTA), Snowflake (SNOW), Splunk (SPLK), Five Below (FIVE), CrowdStrike (CRWD), PVH (PVH)
●Thursday: Dollar General (DG), Marvell Technology (MRVL), Kroger (KR)
●Friday: Big Lots (BIG)

This week’s IPOs include: Nuvectis Pharma (NVCT)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

This week the market pivots to the third month of what has been, historically, the strongest three-month period of the year for stocks. And while the SPX’s median December gain (1.3%) hasn’t been as large as its typical October or November returns, the final month of the year has been the most consistently positive since 1960, up 45 out of 61 times (74%):⁴

Despite that preponderance of up Decembers, the typical up December (1.8%) was about the same size as the typical down one (-2%).

Also, although the SPX’s worst December of the past six decades—2018’s -9.2% swoon—is a relatively fresh memory, December has been fairly stable over the past 10- and 20-year time windows, up in 70% of the time in both periods, with a 0.9% median return.

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¹ CNBC.com. Dow futures drop more than 700 points on fears of new Covid variant found in South Africa. 11/26/21.
² MarketWatch.com. Uh-oh, another U.S. inflation gauge shows prices soaring at fastest pace in 31 years. 11/24/21.
³ CNBC.com. Weekly jobless claims post stunning decline to 199,000, the lowest level since 1969. 11/24/21.
⁴ All figures reflects S&P 500 (SPX) monthly closing prices, 12/31/59–12/31/20. Supporting document available upon request.