U.S. stocks opened 2022 with tepid gains as investors monitored cases of the Omicron variant of Covid-19 and other factors that could weigh on stocks this year.
The S&P 500 gained 0.4% in early Monday trading. The index ended 2021 up 27%, notching 70 record highs along the way. The tech-focused Nasdaq Composite Index added 0.7% early Monday, and the Dow Jones Industrial Average added 0.3%.
Investors see a rockier path ahead for stocks this year. The initial rollout of Covid-19 vaccines and the easing of restrictions to contain the spread of the coronavirus, along with easy-money policies from central banks, helped support markets last year. The unwind of the Federal Reserve’s bond-buying program and likely interest-rate increases could weigh on markets in 2022. Stocks have benefited from low rates, which have fueled riskier investments.
While some investors expect that inflation, which reached a 39-year high in November, has peaked, others are worried that Omicron could prolong supply-chain disruptions, adding further pressure to prices.
“It’s going to be a little bit bumpier than 2021. The three big questions that we ended the year with are still here: Omicron, inflation and supply chains, and the Fed,” said Esty Dwek, chief investment officer at FlowBank. “There’s definitely potential for outperformance for equity markets. I don’t think we’ll see 20% plus but we could see double-digits.”
Signs that the Omicron variant may cause significantly milder effects than earlier strains also supported sentiment heading into the start of the year. Money managers are hopeful this will limit mobility restrictions that weigh on economic growth.
“The wave we are seeing now, you see a lot of cases but you see less people in the hospitals and less deaths. That will give reassurance to markets,” said Geir Lode, head of global equities at Federated Hermes.
Despite the uncertainty, investors have history on their side. The S&P 500 has gained more than 10% annually for the last three years, a long stretch of gains that has happened only four other times, said Frank Cappelleri, executive director at brokerage firm Instinet. The index rose again in three of the four previous occurrences.
In corporate news, tech shares will once again be in focus. The annual Consumer Electronics Show begins on Monday in Las Vegas, live this time as opposed to last year’s virtual conference. Companies that are even tangentially related to technology, from car makers to education to health care, will be there in one form or another.
The S&P 500’s tech sector was up 0.2%.
In commodities, U.S. crude oil shook off early selling, most recently down only 0.1% at $75.15. Brent crude, the global benchmark, was up 0.2%.
In bond markets, the yield on the benchmark 10-year Treasury note ticked up to 1.603% from 1.496% Friday. Yields rise when prices fall.
Overseas, the Stoxx Europe 600 gained 0.6%. Markets in China, Japan and Australia were closed for a holiday. South Korea’s Kospi closed up 0.4%, and Hong Kong’s Hang Seng fell 0.5%.
Investors are watching Chinese economic activity and policies to assess how strong global growth will be this year and whether the nation’s strict Covid-19 prevention measures will put further pressure on supply chains and inflation. The Winter Olympics next month in Beijing are built around a “Covid zero” approach that could affect economic activity, Ms. Dwek said.
Write to Caitlin Ostroff at firstname.lastname@example.org
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