US market: Santa Claus rally takes indices higher, S&P posts 27% return in 2021

US market weekly wrap

Santa Claus Rally in the last week of December took US market indices to post one of the best years in 2021. Here are the major factors that drove the markets during the last week of 2021. 

U.S. stocks closed higher on Monday for the fourth consecutive session on higher holiday retail sales and a rally in tech and energy stocks. Also, investors reassessed Omicron fears. All the three major indexes ended in positive territory.

U.S. stocks closed mixed on Tuesday, with the four-day rally somewhat losing steam in the final week of the year, as investors looked hopeful about 2022 despite record new COVID-19 cases emerging from the Omicron variant. The S&P and Nasdaq ended in the red, while the Dow finished in positive territory.

The benchmark indices closed at record highs on Wednesday, as investors shed Omicron fears despite a surge in new cases and hospitalizations. However, the Nasdaq closed slightly lower as the 10-year Treasury yield hit its highest in a month.

In an abrupt reversal, markets closed down on Thursday in the penultimate session of 2021 as a thinly-traded last week of the year for Wall Street comes to a close.
U.S. stocks lost steam in a lackluster trading session on Friday, as major indexes closed the last day of 2021 marginally lower, but still within striking distance of record highs made during a banner year.The S&P 500 posted a weekly gain of 0.9% and Nasdaq underperformed with a weekly loss of 0.1%. 

Weekly market stats with IND

Let’s see the major developments during the week:

Stocks post strong gains in 2021: Year 2021 was the 6th best year for U.S. equities since 1990, becoming the 9th year with a return above 25% in that period. The S&P 500 closed 70 days at record highs. 2021 was also the 3rd year of consecutive double-digit gains, raising the average annual return since 2019 to 26%. On a yearly basis S&P 500 gave 28.7% returns, Dow 20% and Nasdaq rallied to give 23% returns.

Covid Update: Despite daily coronavirus cases rising to record highs, waning fears over the omicron variant appeared to deserve much of the credit for the stock market gains. The 7-day average has risen to 3.84 lakh cases in the US. Around 62% of the country is now fully vaccinated. The overall number of Covid cases stands around 54.6 million. 

Weekly Jobs Report: Weekly jobless claims fell back to near five-decade lows, and continuing claims fell much more than expected and hit their lowest level since the onset of the pandemic.

Holiday Sales: Holiday sales rose 8.5% in December compared to last year, being the biggest gain in 17 years. Sales were also 10.7% higher than pre-pandemic levels in 2019. The data suggested that supply and labor challenges might be easing for retailers while also allowing them to pass on higher costs to customers. Retail stocks generally fared well on the news, but declines in and casino and cruise ship operators weighed on the consumer discretionary sector as a whole. 
Yields Rise: U.S. Treasury yields were generally steady against a backdrop of light trading volumes and few key economic data releases. Technical factors supported a modest rise in rates through the middle of the week, with the 10-year U.S. Treasury note yield reached an intra month high of 1.55% on Wed. The 10-year yield retreated to roughly 1.50% by Friday, as rates generally retraced their early-week increases.