S&P WEEKLY OUTLOOK: SLIGHTLY BEARISH
- Volatility has spiked in current days on rising issues concerning the pandemic
- The S&P 500 has trended decrease as merchants have trimmed their publicity to danger belongings
- Although the basic backdrop stays supportive for many U.S. shares on sturdy company earnings and constructive revenue outlook, omicron variant uncertainty will drive worth motion within the near-term
Wall Street has been on a curler coaster trip in current days. Friday after the Thanksgiving Vacation, US shares tumbled on pandemic fears, however regained some floor on Monday, earlier than falling sharply on Tuesday and Wednesday because the Fed signaled it might speed up the QE wind-down course of and the CDC recognized the first cases of the Omicron COVID-19 variant within the nation. On Thursday, we noticed some aid as dip consumers pounced, however sellers resurfaced simply earlier than the weekend to dump shares following blended U.S. economic data and coronavirus angst.
For the week forward, there’s not a lot purpose to be optimistic but. Whereas the beginning of December is often interval for the S&P 500 and different fairness indices, the Fed’s recent pivot towards faster tapering and extra importantly, uncertainty concerning the course of the continuing healthcare disaster are undermining danger urge for food. With little data on the omicron pressure presently, the prevailing cautious sentiment amongst buyers is not going to change in a single day and algos will proceed to dump shares as headlines of latest infections within the U.S. hit the wires.
Within the present atmosphere, volatility is more likely to keep elevated, with the primary averages (S&P 500, Dow, Nasdaq 100, Russell 2000) and significantly the reopening theme (airways, cruises, eating places, accommodations, and so forth.) biased to the draw back. Regardless of this outlook, betting on directionality could also be a dangerous proposition till we study extra about omicron, however that doesn’t imply there aren’t alternatives on the market. That mentioned, merchants can nonetheless profit from the continuing market dynamics by specializing in methods that capitalize on excessive volatility akin to straddles on excessive beta belongings, maybe people who have already moved lots just lately (in case of a reversal).
Specializing in fundamentals, the U.S. economic system appears to be stabilizing after the summer time’s tough patch. That is excellent news for fourth quarter earnings and doubtless past. Granted, Friday’s November NFP outcomes upset, coming in at 235,000 versus the anticipated 550,000, however this quantity could possibly be revised considerably greater subsequent month contemplating that the Family Survey contradicted the Institution Report by a large margin (the Family Survey confirmed 1.14 million jobs created vs 235,000 within the Institution Survey).
Elsewhere, the November’s Non-Manufacturing ISM was a blockbuster report.
Based on the PMI launch, exercise within the providers sector soared to an all-time excessive of 69.1, nicely above consensus estimates of 65. The current string of strong knowledge means that US GDP may develop at an annualized rate of 9.7% within the remaining three months of the yr, following the two.1% enhance within the third quarter. Heading into 2022, a robust restoration is constructive for company income, and thus their inventory costs, however none of this issues within the brief time period as merchants are extra centered on the newly found Omicron variant and its implications on the worldwide economic system.
Personally, till I do know extra about this pressure, I’d keep away from taking giant directional positions in risk-assets, together with the S&P 500, although I’ll contemplate volatility devices (VIX, for instance).
S&P 500 DAILY CHART
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—Written by Diego Colman, Contributor