Capital Market Impact Weekly market commentary

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Are markets setting up for year-end rally?

November 22, 2021


  • Equity markets were mixed last week, with strength in a handful of technology names allowing a modest gain for the S&P 500® Index, but losses in many other areas. The S&P 500 has now recorded 66 record highs this year, the second-most on record to the 77 in 1995. Interest rates fell despite the increased likelihood of rate hikes in 2022, with real rates at record lows, while the dollar reached a 16-month high.
  • The November Bank of America Global Fund Manager Survey reflected improving optimism on global growth and earnings expectations, with 65% expecting a global economic boom over the next year and 61% believing inflation is transitory. Risk tolerance has increased, with a net 5% taking above-average risk, up 10 points from October, but down from 25% in February. Cash levels fell to 4.4%, while allocation to U.S. equities increased 13 points to a net 29% overweight. The primary risks identified include inflation, central bank policy, and China. Retail investors remain strong buyers of equities, with roughly $1 trillion into equity funds and ETFs this year, while corporate buybacks are approaching a record $1 trillion.
  • Volatility could be the theme this week due to the holiday, with economic data largely consolidated into Tuesday and Wednesday, and trading volume historically light. Given strong fund flows, buying pressure from share repurchases and window dressing for institutional investors, it is difficult to see what could derail the market momentum into year-end.


  • Initial signs are developing that the supply chain logjam is beginning to ease, with the number of shipping containers stuck in the Port of Los Angeles down 30% over the past month. Retailers are making encouraging comments about holiday inventories, manufacturers are noting improvement in the chip shortage, and shipping costs have fallen. While improved, labor issues could continue to pressure the supply chain well into next year.
  • COVID cases are again on the rebound, with the seven-day average up 33% in the past two weeks. Cases are rising in 39 states, centered around the Midwest, New England, and the Southwest. Fortunately, the high level of vaccinations has kept hospitalizations and deaths steady despite the uptick in cases. Nearly 200 million Americans have been fully vaccinated, including 32 million with a booster. Among the vulnerable population 65 and older, over 86% are fully vaccinated. Europe is seeing a spike in cases despite high vaccination rates, with Austria enacting lockdown measures and Germany heading that direction. This has led to protests and civil unrest and threatens the global economic rebound.
  • Recent Fedspeak is shifting, with Chicago Fed President Evens saying he is more open-minded to a 2022 rate hike than six months ago, as inflation persists longer than expected. Atlanta Fed President Bostic said it may be appropriate to begin raising rates in the middle of next year as the job market improves. The Fed Futures curve on Thursday embedded a greater than 50% chance of three-or-more hikes next year, double the level from a month ago. The Fed’s “dot plot” currently shows half of the officials looking for a hike next year, but that could change at the December 15 FOMC meeting. This comes against the backdrop of uncertainty around who will be the next Fed chair. President Biden, as expected, announced the intention to reappoint Jay Powell as Fed Chair and Lael Brainard as Vice Chair.

What to Watch

  • This week could be interesting for markets, given a light slate of data and low expected volume given the Thanksgiving holiday. Economic data include PMI data on Tuesday, and durable goods, revised third-quarter GDP, consumer sentiment, personal spending, and income, and the PCE deflator.


  • This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

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