Stocks edged higher on Monday as investors showed hope about the economy’s ability to overcome the surge in Covid cases and focused on progress from the nation’s automakers.
The Dow Jones Industrial Average added 63 points, or about 0.1%. The S&P 500 gained 0.2%, while the Nasdaq advanced about 0.8%, helped by a jump in Tesla shares.
“It’s a glass-half-full start to the year and that’s been our perspective throughout 2021 and heading into 2022,” said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management. “We’re still in that modestly optimistic outlook for the year ahead and think the economy and corporate profits are set up to support rising equity prices, at least in the first part of the year.”
Tesla helped the market generate some momentum Monday, rising 10% after the electric vehicle company reported 308,600 deliveries in the fourth quarter, beating expectations. Along with Tesla, big automakers also saw their shares climb. Ford Motor and General Motors rose 1.5% and 2.6%, respectively.
Reopening stocks also pushed higher Monday. Airlines rose as investors shrugged off concerns about holiday flight cancelations that have extended into Monday. American and United added about 3%. Norwegian Cruise Line and Carnival Corp were among the top gainers in the S&P 500, each adding about 6%. Casino stocks were higher, with Las Vegas Sands up 2% and Wynn Resorts up 3%.
Still, uncertainty around the Covid-19 pandemic remains for the start of the year. The rise of the omicron variant helped lead to thousands of flight cancellations during the holiday season and has led some businesses and schools to consider temporary closures. Also, several major Wall Street banks have asked employees to work from home for the first few weeks of January.
While the fast spread of the omicron variant has been reflected in case numbers, data shows it hasn’t led to a major increase in hospitalizations, and investor appetite for vaccine makers has been subdued. They were among the biggest decliners Monday, with Moderna and BioNTech down about 7% and Pfizer and Novavax down 3%.
“Every single wave that we have of a new variant, we get over faster, and I think that will continue to happen,” Liz Young, SoFi’s head of investment strategy, told CNBC’s “Halftime Report” Monday. However, “what we saw with this last wave is it impacted supply and not demand, which tells me that inflation is still here to stay for the first half of 2022,” she added.
Inflation and monetary policy are also key themes for 2022, as investors expect the Federal Reserve to hike rates multiple times in the coming year to help cool the rise in prices for consumers. Those higher rates wouldn’t necessarily be a bad thing as they would indicate strength in the economy, but it’s something stocks have to “trudge through in order to get to the other side in positive territory,” Young said.
Hainlin agreed that how central banks including the Fed respond to rising inflation will be key in 2022 but added investors have already priced in those responses.
Banks also contributed to the lift in the market Monday. Wells Fargo shares jumped almost 5% following an upgrade to overweight by Barclays, which said it expects banks to outperform the market in 2022 as net interest margins improve off historic lows. JPMorgan, Goldman Sachs and Morgan Stanley gained more than 2%. Bank of America rose nearly 4%.
Stocks have a tendency to gain in the start of a new year as investors look to put new money to work, Bank of America noted on Monday. The S&P 500 was up in the first week of the calendar year in 11 of the last 13 years, with an average gain of about 1.6%, the firm found.
Monday’s moves come after markets closed out a strong 2021 last week. The S&P 500 rose nearly 27% for the year, with the Nasdaq Composite and Dow also posting large returns. Stocks fell slightly on Friday, but the S&P 500 and Dow were positive for the final week of the year.
Infectious disease expert Dr. Anthony Fauci told ABC’s “This Week” on Sunday that U.S. health officials may soon update guidelines to include a testing recommendation to signal when a person who previously tested positive for Covid can leave isolation.
“Just as for the economy as a whole, the market story for 2022 will be a return to normal. As hiring continues, spending grows, and businesses hire and invest, the economy will be normal. The government is normalizing policy on the same expectations. When you look at the macro picture, the overarching theme is 2022 will bring us back to something like normal,” Brad McMillan, chief investment officer for Commonwealth Financial Network, said in a note to clients on Friday.
The first week of the year will be a busy one for economic data, with the key December jobs report slated for a Friday morning release. On Monday, investors will get updated looks at manufacturing activity and construction spending.
— CNBC’s Michael Bloom contributed to this report.
