US stocks rose in thin post-Christmas trading on Monday, while analysts queried whether the favourable market conditions that drove Wall Street to all-time highs this year would continue into 2022. </p>
The broad-based S&P 500 share index closed 1.4 per cent higher, extending its push into record territory after hitting a fresh all time-high on Thursday. The rally has followed weeks of volatility driven by the Omicron coronavirus variant and the US Federal Reserve moving to reduce its emergency stimulus measures.
Energy stocks led the rally, alongside a 3.2 per cent gain in the price of Brent crude, the oil benchmark, to $78.60 a barrel. Technology stocks also ratcheted higher and the tech-focused Nasdaq Composite stock gauge added 1.4 per cent.
The S&P is up more than a quarter this year, boosted by a bounceback in corporate earnings from a coronavirus-induced downturn in 2020 and rock-bottom interest rates that prompted investors to load up on equities.
US monetary conditions remain highly accommodative and recent economic data have been strong. Some Wall Street strategists expect more muted stock market gains for the year ahead, however. The Fed is preparing to raise US interest rates to deal with an inflation surge driven by pressure on supply chains from pandemic-induced curbs as well as higher rents and energy prices.
“We are generally constructive on the US equity outlook for 2022, albeit with expected upside lower than in previous years,” Citi strategist Scott Chronert wrote in a note to clients. “Current inflation concerns imply that the Fed response will remain critical to market direction.”
Louis Gave, of the research house Gavekal, cautioned that Omicron could “wreak havoc on economies and stretched supply chains”. But he also pointed to what he called “encouraging” South African data that suggested the highly transmissible new variant might be less likely to result in hospital admissions than Delta.
The Fed is poised to end its emergency stimulus package, in which it has bought about $120bn of government and mortgage-backed bonds a month throughout the pandemic, in March. The central bank’s officials expect to raise interest rates three times in 2022.
The yield on the benchmark 10-year US Treasury note, which moves inversely to the price of the government debt security, dipped 0.02 percentage points to 1.48 per cent on Monday.
This debt instrument has traded relatively calmly this month as investors priced in a short period of rate rises that would not heavily affect the returns on bonds, relative to cash, over time.
Shorter-dated government debt has borne the brunt of bets on tighter monetary policy, however. The yield on the two-year Treasury ticked up 0.02 percentage points to 0.70 per cent, around its highest point since March 2020.
Elsewhere, the regional European Stoxx 600 share index closed up 0.6 per cent. Trading on London’s FTSE 100 was halted for the holiday.
The dollar index, which measures the US currency against six others including sterling and the euro, rose 0.1 per cent.
Sterling inched 0.4 per cent higher against the dollar to $1.3442. Sajid Javid, UK health secretary, said on Monday that there would be no new Covid restrictions introduced in England before the new year. The UK’s three devolved administrations of Scotland, Wales and Northern Ireland have reintroduced some measures.
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