S&P 500 up again, now 3.4% higher versus Monday’s lows as belated “Santa recovery” continues

• US equities are higher, with the S&P 500 up 0.8%, the Nasdaq 100 up 1.0% and the Dow up 0.6%.
• Traders are citing strong US data and a string of positive pandemic updates as supporting risk appetite.

US equity markets have maintained/built on Tuesday’s momentum and the S&P 500 index is currently trading 0.8% higher on the session in the 4680s with less than an hour to go until the close. That comes after the index posted an impressive 1.8% rally on Tuesday and means that it is now 3.3% higher versus Monday’s lows close to 4530.

The index still trades about 1.3% below record intra-day highs posted a few weeks ago, but given how far the index has already advanced from lows, equity bulls would be forgiven for hoping that this week’s Santa rally, or Santa recovery, can deliver record levels before the Thursday close. The NYSE and Nasdaq exchanges will be closed on Friday. When a holiday falls on a Saturday (Christmas Day), the two major US equity exchanges close on Friday before.

Looking at the other major US indices; the Nasdaq 100 rose 1.0% and has now reclaimed the 16K level and is now up nearly 4.0% from Monday lows, while the Dow rose 0.6%, up nearly 3.0% from weekly lows. The S&P 500 CBOE volatility index dropped more than 1.50 and is now back below 20.00 and eyeing a test of December lows just above 18.00.

Driving the day

Higher equities in the US reflect a broader risk-on tone to global market trade, with traders citing strong US data and a string of positive pandemic updates as supporting risk appetite. Starting with the pandemic latest, the FDA announced that it had approved Pfizer’s highly effective Covid-19 treatment pill (for “high risk” patients). Elsewhere, three new studies (one out of South Africa, one from Scottish Universities and one from Imperial College London) all showed that infection with Omicron is significantly less likely to result in hospitalisation.

While “we are still struggling for direction in the face of the Omicron outbreak” said analysts at BMO Wealth Management, “but in the past few days ... more and more evidence is building that the strain is potentially less severe than prior strains, specifically Delta, which bodes well for economic momentum in 2022”. Optimism about economic momentum heading into 2022 was given a boost on Wednesday after the US Conference Board released a much stronger than expected Consumer Confidence survey. The survey showed that, versus November, more consumers were planning to buy a house and other “big-ticket” items such as cars and expensive household appliances, as well as to go on holiday over the next six months.

One of the factors attributed as contributing to Monday’s sharp stock market drop was the fact that on Sunday, Democrat Senator Joe Manchin said he would not support the Biden administration’s $1.75T Build Back Better spending bill in its current form, dampening hopes for further US fiscal stimulus in the near-term. But as the week has progressed, it has become increasingly clear that negotiations on the bill, which forms the centre of US President Joe Biden’s economic agenda, will continue. According to the White House on Wednesday, there is broad agreement within the Democrat Party on the requirement to move forward with the bill, and talks with Manchin continue.