S&P 500 slips back from session highs above 4800, still on course for massive monthly/annual gains

• The S&P 500 is flat following Monday’s stunning 1.4% surge and has slipped back from earlier session highs above 4800.
• Receding Omicron-worries, signs of a bullish economy and positive seasonality are being cited as bullish factors helping equity market sentiment.

The S&P 500 is trading flat on Tuesday following Monday’s stunning 1.4% surge, with the index falling back from earlier session (and record) highs to the north of the 4800 level. That means the index is now nearly 6.0% up versus last Monday’s lows and with three and a half sessions left to go of the month, is on course to post a monthly gain of more than 5.0%. If the index was to close out the year at current levels, that would translate into gains of about 27%.

Traders have cited a cocktail of positives as behind the rally seen in equities this week. Firstly, concerns about the impact of the Omicron Covid-19 variant have eased substantially since last week as it becomes clear that the new variant is far milder than any prior variants and after new pills were approved in the US that will substantially lower Covid mortality. Secondly, analysts remain upbeat at the prospect for continued earnings growth in 2022 amid signs of underlying strength in the US economy. On Monday, traders were passing around a bullish report from Mastercard which had been released on Sunday and showed a very strong holiday shopping season in the US (sales were up 8.5% YoY between 1 November to 24 December), easing fears that the fast-spreading Omicron variant would hurt growth.

This has helped to ease concerns following news of store closures in New York and elsewhere as retailers look to avoid exposing staff to the Omicron variant. Apple said it had closed all of its 12 New York stores, with customers only able to pick up orders. That hasn’t fazed Apple investors, with AAPL shares up more than 2.0% on the week and back above $180, giving the company a market capitalisation of $2.96T. When the company does inevitably surpass the $3T mark, this will likely generate a lot of headlines. Back to reasons why broader equity market sentiment is buoyant, traders are also citing positive seasonality. According to Reuters citing CFRA Research data, going back to 1969, the S&P 500 has on average risen 1.3% over the course of the final five trading days and then into the first two trading days of each calendar year.

In terms of the other major US indices, the Nasdaq 100 index is a tad lower on the day trading in the mid-16,500s, having at one point been above 16,600 earlier in the session. The tech-heavy index trades just 1.4% below the record levels printed back in November just under 16,800 and is more than 6.5% above last week’s sub-15,600 lows. The Dow, meanwhile, is up about 0.4%, though was unable to hold above 36,500 and fell short of testing its early November highs at 36,565. The CBOE S&P 500 volatility index (or VIX) is stable just underneath the 18.00 level and close to its lowest point of the month. Recall that the index went as high as 35.00 earlier this month, its highest since January.