Omicron Fears Ease

January 4, 2022

Last month we pointed out that December is the best month for the market, closing in positive territory 73% of the time, far more than any other month.  The reasons are not clear, so we will just chalk it up to the Holiday Spirit with both traders and money managers being in good moods.  2021 has been an excellent year for stock market performance and our biggest concern coming into December was uncertainty surrounding the omicron variant.  Our concern was not so much about the variant, but how regulators would react to the variant.  The economy is starting to fully reopen after 18 months of roadblocks, and we were concerned an overreaction by regulators could be a problem.  As the month wore on it became clear that the highly contagious variant comes with generally modest symptoms and the 2021 rally continued.  By the end of the month the S&P 500 had hit multiple new all-time highs and gained another .9%, leaving the widely followed index 26.9% higher for the year, but 50% of that was from just 5 stocks.  Technology stocks that generally lead the way ended the year underperforming the S&P 500 for the first time since 2016.  Oil was up 59% for the year and gold gained 20%.

December began on Wednesday with confirmation of the first U.S. case of omicron which sent the S&P 500 down more than 1%, but the market rebounded the next day and erased that loss.  On Friday we learned that first time claims for jobless benefits were the lowest in 60 years, but we also received a disappointing government jobs report.  At the end of the first 3 days of trading the S&P 500 had lost .6%.  The first full week of December we learned omicron had generally mild symptoms and that Pfizer’s vaccine was effective against the new variant.  The week featured the biggest 2-day rally in 13 months, but we also learned inflation at 6.8% was the fastest pace in 40 years. The market chose good news over bad and finished the week with a gain of 3.8%.  The second full week of the month saw the market move lower as concerns grew about the blistering pace of infections we were seeing from omicron.  Wholesale prices were up 9.6% year over year which was the highest on record and the S&P 500 ended the week with a loss of 2%.  The third full week was Christmas week which traditionally has an upward bias.  This year was no exception as the market shrugged off omicron fears and in the holiday spirit, gained 2.3%.  The final week of the month was quiet.  At this point most of the tax loss selling and portfolio repositioning had taken place and several businesses were closed for the week.  The S&P 500 ended the week with a gain of .9%.

January is the month that sees more money come into stock mutual funds than any other month.  People of all income are making contributions to their 401k. You would expect the month to be good for the stock market and it is, closing higher 63% of the time with an average gain of 1.2%.  However, when the gain for the prior year is more than 20%, as in 2021, the average return in January move to 0.  After a strong year many investors wait until the New Year to sell which puts downward pressure on stocks in the early going, something we would not be surprised to see this year. Omicron will obviously play in role in January.  If cases continue to rise dramatically it could weigh on stock, but if we see cases begin to fall off, like they have in South Africa, we could see the reopen trades attract interest.  Technology stocks are the engines that drive the market and we need to see that sector disconnect from rising interest rates.  Russia’s threatening behavior towards Ukraine could play a part during the month.  For 18 months we have been advising buying on the dips and we will continue to look for tradeable declines to buy.

If you know someone who would be interested in learning more about Greenberg Financial Group, please contact us at 520-544-4909, or visit our NEW website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.

 

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