The equity markets bounced back last week as fears faded about the Omicron virus and the focus shifted to this week's Federal Reserve meeting. The current worry is the Fed will take a more hawkish stance by accelerating their plans to slow down their current securities purchases even faster.
On the inflation front, the Consumer Price Index (CPI) surged to 6.8% in November, the highest reading since 1982. This is quickly approaching the tipping point where the Federal Reserve may have to reverse course quickly.
If the Fed does take a more aggressive stance on their securities purchasing, by slowing it down even faster than advertised, it sets the stage for an actual increase in short-term rates. With a quicker rise in interest rates, equities will likely face a much tougher year in 2022.
The Dow Jones Industrial Average picked up 4.02%, while the Standard & Poor’s 500 advanced 3.82%. The Nasdaq Composite Index gained 3.61% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.74%.1,2,3
Though much is still unknown about the Omicron variant, reports of potentially milder health effects and the efficacy of booster shots ignited optimism that its economic impact would be less severe than originally feared.
Stocks rallied higher each of the first three days, with strong gains in many of the reopening stocks, such as airlines, travel and leisure, financials, and energy. The performance of high-valuation growth companies was a bit more erratic as they rose and fell sharply throughout much of the week. Weakening Thursday, stocks turned higher on Friday despite a hot inflation number, pushing the S&P 500 to a new record high.4
November’s Consumer Price Index (CPI) came in at a nearly 40-year high, rising 0.8% from the previous month and 6.8% from a year ago. It is the 6th-consecutive month that inflation has exceeded 5%. Core inflation (excluding the more volatile food and energy prices) came in lower, but still posted its sharpest jump since 1991.5
Economists have attributed this elevated inflation rate to strong consumer demand, a shortage of goods due to supply chain constraints, and strong wage growth. How long this high level of inflation persists is unknown, but the Fed has begun considering policy steps to manage it.
This Week: Key Economic Data
Wednesday: Retail Sales. FOMC (Federal Open Market Committee) Announcement.
Thursday: Jobless Claims. Housing Starts. Industrial Production. PMI (Purchasing Managers’ Index) Composite Flash.
Source: Econoday, December 10, 2021
This Week: Companies Reporting Earnings
Thursday: Adobe, Inc. (ADBE), FedEx Corporation (FDX), Lennar Corporation (LEN).
Friday: Darden Restaurants, Inc. (DRI).
Source: Zacks, December 10, 2021
“Never be limited by other people’s limited imaginations.”
– Mae Jemison
Tax Incentives Can Help You Further Your Education
Tax credits help with the cost of higher education by reducing the amount of income tax you may need to pay. The two tax credits available are the American Opportunity Tax Credit and the Lifetime Learning Credit.
Some education savings plans offer tax benefits if the individual qualifies. Also, you may be able to deduct higher-education costs – such as tuition, student loan interest, and qualified education expenses – from your tax return.
If you’ve always dreamed about going back to school, whether to further your career or just to learn something new, knowing your potential tax benefits may save you money.
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
The Benefits of Brain Training
We know how important it is to exercise our bodies, but exercising our brains is just as important. When we continue to learn, our brains are better for it. Here are just a few benefits from “brain training,” or exercising your brain:
There are lots of fun ways to exercise your brain, one of which is to continue to learn new things. Attend a pottery, painting, or foreign language class in your neighborhood, or check for any discounts on community college courses. Another great way to exercise your brain is to socialize with others, spend time in nature, and practice mind puzzles, such as crosswords, Sudoku, or a game in a brain-training app.
Tip adapted from the American Psychological Association7
I never ask you questions, yet you answer me all the time. What am I?
Last week’s riddle: You sit down to play chess. Out of the 16 pieces you have at your disposal, how many of them could be used to make your first move? Answer: 10 (eight pawns and two knights).
Glacier hiker explores ice cave, Svínafellsjökull glacier, Skaftafell National Park, Iceland.
Footnotes and Sources
2. The Wall Street Journal, December 10, 2021
3. The Wall Street Journal, December 10, 2021
4. CNBC, December 10, 2021
5. The Wall Street Journal, December 10, 2021
6. IRS.gov, June 16, 2021
7. American Psychological Association, June 24, 2021
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Weekly Market Insights: Omicron News Boosts Stocks
December 13, 2021