US stocks were on track for muted gains in thin holiday trading on Monday, as analysts queried whether the favourable market conditions that drove Wall Street to all-time highs this year would continue into 2022.
Futures contracts that bet on the direction of the S&P 500 share index gained 0.2 per cent during the late European morning. The blue-chip index hit a record-high close on December 23 following weeks of volatility driven by the Omicron coronavirus variant and the US Federal Reserve moving to reduce its emergency stimulus measures.
Contracts that wager on the direction of the technology-focused Nasdaq 100 stock gauge added about 0.2 per cent.
The S&P has gained 26 per cent this year, boosted by a bounceback in corporate earnings from a coronavirus-induced downturn in 2020 and rock-bottom interest rates that prompted investors to load up on equities.
Some Wall Street strategists expect more muted gains for the year ahead as the Fed seeks to deal with an inflation surge driven by pressure on supply chains from pandemic-induced curbs.
“We are generally constructive on the US equity outlook for 2022, albeit with expected upside lower than in previous years,” Citi strategist Scott Chronert wrote in a note to clients. “Current inflation concerns imply that the Fed response will remain critical to market direction.”
Louis Gave, of research house Gavekal, cautioned that Omicron could “wreak havoc on economies and stretched supply chains”. But he also pointed to what he called “encouraging” South African data that suggested the highly transmissible new variant may be less likely to result in hospitalisations than Delta.
The Fed is poised to end its emergency stimulus package, where it has bought about $120bn of government and mortgage backed bonds per month through the pandemic, in March. The central bank’s officials expect to raise interest rates three times in 2022.
The yield on the benchmark 10-year US Treasury note, which moves inversely to the price of the government debt security, was flat at around 1.49 per cent on Monday.
This debt instrument has traded relatively calmly this month as investors priced in a short period of rate rises that would not heavily affect the returns on bonds, relative to cash, over time.
Shorter-dated government debt has borne the brunt of bets on tighter monetary policy, however. The yield on the two-year Treasury ticked up 0.02 percentage points to just over 0.7 per cent, around its highest point since March 2020.
Elsewhere, European stocks edged up, with the regional Stoxx 600 share index adding 0.3 per cent. Trading on London’s FTSE 100 was halted for the holiday.
The dollar index, which measures the US currency against six others including sterling and the euro, rose just under 0.2 per cent.
Sterling inched 0.1 per cent higher against the dollar to about $1.34 and was flat against the euro, purchasing just over €1.18, as traders awaited a decision on coronavirus restrictions in England from UK prime minister Boris Johnson. The nation’s three devolved administrations of Scotland, Wales and Northern Ireland have reintroduced some measures.
The price of Brent crude, the oil benchmark, drifted 0.1 per cent lower to $76.08 a barrel.
