14 December 2021
Last week saw US stocks experience their best week since February, with the S&P 500 Index closing at a record high. The index of blue-chip US stocks rose 0.95% on Friday, meaning its weekly gain amounted to 3.6%.
The Nasdaq Composite Index likewise witnessed a positive week, rising by 3.39%.
On Friday morning, the US Bureau of Labor Statistics announced that US inflation rose by 6.8% over the course of the year. It would appear that markets had anticipated this type of figure, or had at least ‘priced it in’, given that markets didn’t lose their gains for the week following the release of this data.
Virus versus vaccine
In other news, markets continued to feel the effect of the Omicron variant last week. On Wednesday night, the UK made its ‘Plan B’ restrictions public – effective as of yesterday – in response to the surge in case numbers. People are advised to work from home and wear a mask at many indoor venues.
Markets are still eyeing up new data as to how successful current vaccines are against Omicron. In this regard, there was some positive news last week, as the UK Health Security Agency shared that booster shots could be up to 75% effective against symptomatic infections. What’s more, last week, data from a hospital at the centre of the outbreak in Pretoria, South Africa, indicated that less severe symptoms are being seen in patients than during previous waves.
“Investors are increasingly optimistic that Omicron won’t prove as bad as feared,” wrote Adrian Frost at Artemis, which manages funds for St. James’s Place.
On the other hand, Frost observes investors are still at risk. For example, the Federal Reserve’s tapering of economic support may be swifter than previously thought, which might subsequently ruffle markets if investors believe that the central bank is doing too much, too soon.
Meanwhile, in Asia last week, Chinese real estate developer Evergrande neglected to make interest payments on some of its bonds. This led ratings agency Fitch to state that the company is in ‘restricted default’.
The ripple effect of Evergrande’s failure to pay will be felt on an international level – after all, it has more than $300 billion in liabilities. When news about the company’s problems first emerged in September, there were concerns that there could be a major fallout – yet fears of a 2008-style contagion from Evergrande’s issues have since dwindled.
In Germany, Olaf Scholz was elected as Chancellor last week. Set to lead a three-way coalition between the Social Democrats, Greens and Liberals, his initial task will be attempting to contain COVID-19; however, his pledges also include modernising the country and implementing progressive social policies.