December key drivers

• Despite concerns over the spread of the omicron variant and the potential impact on the global economy, global equities moved higher in December to close out a strong year. The S&P 500 gained more than 4%, the MSCI EAFE index gained 4% and the MSCI Emerging Markets index was up 1.8%. Credit markets were lower as a move towards higher interest rates continued, although high yield posted gains for the month. Overall, it was a very good year for credit markets and investors.
• For much of the month there was a risk-off trend in markets, not only as a result of the most recent surge in Covid-19, but also uncertainty over how the Federal Reserve (Fed) would alter monetary policy heading into 2022. Consumer prices were up over 6% for the 12-months-ending November 2021, according to the Bureau of Labor Statistics—the highest increase since June of 1982.
• The Fed confirmed they would move forward with their plans to end their bond purchase program and pivot to a tighter monetary policy stance in 2022. Although the message from Chair Jerome Powell was more hawkish than in the past, investors appeared to welcome the transparency.
• Stronger-than-expected holiday sales were posted, according to Mastercard SpendingPulse, as consumers continued to have a positive view on their financial condition. Consumer sentiment has remained positive despite the higher inflation rate. 

What to watch in January

• With the surge in the omicron variant impacting the entire globe and surpassing the last surge in late 2021, the question on investor’s minds will be, “how long and how impactful will this be?” 
• So far, markets have been resilient to the latest surge as higher vaccination rates, evidence of milder symptoms and fewer lockdowns in major economies suggest less of an impact on economic activity. Investors will also be watching to see if countries will experience a similar surge, then peak, similar to what we are beginning to see in South Africa.
• Economic data releases in January will also be indicators of how impactful omicron is on consumer sentiment, business activity and the labor market. We are seeing stable data so far and an improving labor market heading into 2022.
• Fourth quarter earnings season kicks off in January with expectations for double digit earnings growth for the quarter for companies in the S&P 500. However, what investors will be looking for is guidance on 2022 earnings as labor costs and inflation begins to have an impact on companies. According to FactSet, projections for 2022 show about a     9% earnings growth estimate for the year and 7% revenue growth rate—much more muted estimates compared to 2021.

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