Stocks rebound sharply despite U.S. inflation

The S&P 500 climbed +3.82% week-over-week to close at a record of 4,712.02 amid renewed optimism on a full global economic recovery after positive vaccine news (VIX index, Wall Street's Fear Gauge, down 40%). Pfizer and BioNTech indeed said Wednesday preliminary results showed their Covid-19 vaccine could neutralize the Omicron variant with three doses. The Nasdaq composite performed in line (+3.61%) with the S&P 500. Investors continued to pile into tech stocks though inflation is surging. The CPI (Consumer Price Index) rose 6.8% annually in November. This is the fastest rate since June 1982.

European and APAC equity indices also closed higher. The MSCI EMU gained 2.62%, snapping its three-week losing streak. The MSCI World jumped 3.30% after four weeks in the red. Japan’s Nikkei was up +1.46%. The Shanghai Composite recorded a fifth positive week in a row (+1.63%).

Green lights flash everywhere  

All the S&P 500 sectors ended the week in positive territory amid easing concerns about the Omicron variant with reports of mild symptoms. That stands in stark contrast to last week’s sell-off. Information technology was the best performer (+5.98%), especially thanks to Apple stocks (up +10.88%). Energy also fared well (+3.69%) in the wake of rising oil prices after Saudi Arabia hiked its selling prices for oil exports to U.S. and Asian customers (WTI crude up +8.16%). Yet U.S. inventories had fallen to 240,000 barrels last week, missing forecasts for a draw of 1.71 million barrels.

Consumer discretionary was the poorest performer though it gained 2.52% week-over-week but the Tesla stock (+0.2%) dragged it down with continued outflows from the ARK Innovation ETF. To make matters worse, the company is under the SEC’s investigation after a whistleblower’s claim about fire risks associated with defective solar panels. The company failed to properly notify its shareholders and the public of such risks.

Treasury yields bounce back

The yield on the U.S. benchmark 10-year T-note rose from +1.35% to +1.48%, reflecting the consensus view that the hotter-than-expected inflation could lead to faster monetary policy tightening by the Federal Reserve. In Germany, the 10-year bond yield inched 4bps higher at -0.35%.

Corporate investment grade bonds closed mixed (+0.14% in Europe, -0.44% in the U.S.). In the high-yield space, the trend remained positive on both sides of the Atlantic (+0.42% in Europe, +0.60% in the U.S.). Ditto for emerging debt (+1.02% in local currencies) as the dollar index was losing steam. Elsewhere, gold was treading water (spot price at $1,782.64/Oz, or -0.025%).

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