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Is the Santa Claus rally in Jeopardy?

Investment implications of the Fed’s pivot

LPL strategists discuss investment implications of the Federal Reserve’s recent hawkish pivot. Based on the stock market’s historical performance ahead of an initial Fed rate hike, stock investors may not need to worry too much about the Fed’s plans in 2022. Cyclical value sectors have historically done well during these periods. However, Jeff and Scott note that this cycle is different with interest rates so low and COVID-19 lingering, suggesting the path to outperformance for value stocks may be difficult.

Will Omicron spoil the Santa Claus rally?

There’s been no shortage of scary headlines surrounding the Omicron variant, including surging cases, school closings, and canceled sporting events. Omicron now represents 73% of cases in the U.S., up from 13% last week, according to the CDC. Those concerns on top of Fed jitters, drove the biggest three-day decline for the S&P 500 Index since September.

But will the variant spoil the stock market’s pattern of strong performance during late December? While the late December rally might be delayed, LPL Research still expects stocks to make another move higher as soon as Omicron risks begins to fade. Uncertainty remains, though generally mild symptoms, few hospitalizations among vaccinated, and boosters’ effectiveness are encouraging.

Dissecting the rally in defensive stocks

Less economically sensitive stocks have been performing well lately. The top performing sectors over the past month all have defensive characteristics: consumer staples, healthcare, real estate, and utilities. Jeff and Scott do not think this is a sign of trouble ahead given the strong economic backdrop, nor do they anticipate these trends will be sustained, though LPL Research does maintain a positive view of the real estate sector and sees healthcare becoming more attractive.

Tune in now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.



This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 


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