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Analytics, 27 December 2021

What will drive the markets this week?

Equity markets rebounded last week on optimism on optimism that the omicron variant of COVID won’t derail global economies. In the US, the S&P 500 index scored its 68th record close of the year ahead of the long Christmas holiday weekend.

Investors also absorbed relatively positive data, including a boost in consumer confidence as the Conference Board’s Consumer Confidence Index showed more Americans plan to buy a house or other big-ticket items like vehicles and household appliances over the next six months.

Markets will remain bullish in the last week of the year as investors anticipate a “Santa Claus rally,” a seasonal phenomenon thought to result from a combination of investor optimism and the investing of holiday bonuses. Since the 1960s, the markets have typically brought shareholders positive gains for December. The Santa Claus optimism was evident Monday as U.S. stock indexes rose Monday as markets reopened after the Christmas holiday and investors assessed the spread of the omicron Covid-19 variant. On opening, the S&P 500 hit an intraday record and gained 1%. The Dow Jones Industrial Average added about 210 points or 0.6%. The Nasdaq Composite ticked up 1.2%.

This week, investors will also assess key economic data including an update on the state of the U.S. housing market, and a read on the manufacturing outlook in China. The S&P Case-Shiller Home Price Index for October released will be released Tuesday. The index measures changes in home prices in America’s largest cities and is expected to show a 1.1% rise after a 0.8% increase in September.

Meanwhile, China Manufacturing PMI is due on Thursday. Last month, China’s National Bureau of Statistics reported the country’s Manufacturing Purchasing Managers’ Index (PMI) rose from a reading of 49.2 to 50.1 in November, returning to a positive outlook. December’s reading, due on Thursday, is expected to hold above 50 as supply pressures ease slightly for manufacturers in the world’s second-largest economy by GDP. Any reading above 50 indicates an expansion. Market strategists remained positive on the overall equity outlook amid the surge in Covid cases. New studies suggest that omicron has a lower risk of hospitalization than other Covid variants.

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