S&P 500 Rallies as Biden Rules Out New Lockdowns, but Omicron Remains a Wild Card

(MENAFN- DailyFX) S&P 500 OUTLOOK:

• on Monday following a large sell-off last Friday triggered by renewed COVID-19 concerns
• The S&P 500 climbs 1.32% while the Nasdaq 100 surges 2.3% at the market close as a relative sense of calm returns to Wall Street
• The omicron variant will remain a source of uncertainty in the short term until more information becomes available, so volatility is likely to remain elevated over the next few weeks

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Most read: Moderna Eyes Early 2022 for Omicron Vaccine, 'OPEC+' Delays Technical Meeting

U.S. stocks rebounded on Monday as a relative sense of calm returned to Wall Street after President Biden indicated at a press conference that coronavirus lockdowns are not needed for now and pledged to tackle any surge in cases with more vaccinations. At the market close, the S&P 500 rose 1.32% to 4,655, while the Dow Jones was up 0.68% to 35,135. Meanwhile, the Nasdaq 100 led gains, rising 2.3% to 16,400, erasing all losses sustained before the weekend.

Last Friday, the major equity averages, along with oil , took a plunge in a holiday-shortened trading session as a new COVID-19 variant first detected in Botswana, dubbed Omicron, sent investorsout of risky assets and into safe havens.The new strain of the virus, which has a worrying mutation profile, has been driving up infections in South Africa, although it is not yet clear whether it causes more severe illness or evades vaccine protection altogether.

Having little information at this time, many countries have tightened border controls, with the United States restricting entry from several southern African nations, and Israel and Japan completely closing their borders to all foreigners to get ahead of the situation and protect the public health.

The prospect of prolonged travel restrictions and even blanket lockdowns will keep investors on edge for the next few weeks until more details are known about the transmissibility and severity of the Omicron variant. Scientists are relentlessly analyzing the incoming data, but more time is needed to conduct comprehensive epidemiological studies to understand the new strain'sbehavior and assess the risks it poses. That said, we should learn more by mid-December at the latest so until then caution is warranted.

Heightened uncertainty about the economic recovery amid renewed pandemic concerns willbolster volatility in the near term, possibly skewing stocks to the downside despite today's rally, though the work-and-stay-at-home trade may still perform well in a risk-off scenario. However, if omicron turns out to be no more malicious or deadly than other variants and existing vaccines remain effective, we may see a strong upside move in equity markets heading into 2022, with cyclical stocks leading the charge.

S&P 500 has rebounded after failing to break channel support last Friday, but sentiment remains fragile amid COVID-19 anxiety. To rejuvenate buying momentum, we would need to see a sustained move above resistance at 4,675 in coming sessions. If this scenario plays out, the index could be on its way to retest its record high near 4,745.

On the flip side, if bears retake control of the market and the S&P 500 takes a turn to the downside, support appear at the 4,600 psychological level, but a drop below this floor could trigger a pullback towards 4,545.

S&P 500 (SPX) Chart by TradingView

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---Written by Diego Colman, Contributor

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