November key drivers

• Global financial markets were hit hard at the end of November as news of a new Covid strain emerged. The S&P 500 was positive for much of the month but ended down slightly. Non-US equities, both developed and emerging markets, closed lower by more than 4% for the month.
• The risk-off shift in markets came as a result of the newly discovered Omicron virus variant that suddenly became the dominant virus spreading in parts of South Africa. Given how little the scientific community currently knows about this variant and its potential severity, a risk-off mentality swept through markets. Until there is better clarity, risk aversion will likely be the theme across global markets in the near-term.
• The Federal Reserve (Fed) announced a beginning to the end of their bond purchase program starting in November with a  full wind down by June of 2022. However, in testimony given  to the Senate Banking Committee on November 30, Chair Jerome Powell suggested a shorter timeline given the current inflationary environment. This pivot caught markets off guard adding to concerns of rate hikes happening sooner rather   than later.
• Third quarter earnings season wrapped with yet another quarter of impressive results. With most companies reporting in the S&P 500, over 80% posted better-than-expected earnings growth rates, according the FactSet. 

What to watch in December

• Uncertainty over the Omicron variant will likely continue to have a hold on investor sentiment for much of December. Clarity on transmission, global spread, vaccine efficacy and severity of symptoms is needed to allow investors to assess the impact on the global economy and markets. We expect increased levels of volatility.
• In the November labor market report released on December 3, nonfarm payrolls grew by 210,000, missing estimates by approximately 300,000. However, the unemployment rate dropped to 4.2%, which would be the lowest level since March of 2020. Investors will be watching how the Fed reacts to this mixed bag of news, but expectations hold for 2022.
• The Federal Reserve meeting on December 14 and 15 could result in a revision on the speed in which the Fed’s bond buying program will wind down. A quicker pace could signal a shift towards rate hikes in mid-2022.
• We expect inflation and the current supply chain issues to remain a focus for investors in December. There is some emerging data that suggest global supply chains are starting to improve, which could help to lower the future pace of inflation. The Baltic Dry Index, which tracks the cost to transport raw materials by sea, has declined more than 45% since early October. From January 1 until October 6, 2021, this cost index was up over 300%.

Bill Norris is a Team Executive for CIBC Private Wealth Boston office.