3 Major U.S. Stock Indices Climbing More Than 1% and the Dow Jones Industrial Average topping 37,000

The U.S. stock market had a remarkable rally on Monday, as investors cheered the positive news on the Omicron variant and the progress on the debt ceiling deal. All three major U.S. stock indexes climbed more than 1% and the Dow Jones Industrial Average topped 37,000 for the first time, closing at a record high of 37,068.29. The S&P 500 and the Nasdaq Composite also reached new all-time highs, gaining 1.13% and 1.42%, respectively.

What drove this impressive performance? Several factors contributed to the bullish sentiment, including:

• The Omicron variant appears to be less severe than initially feared, according to some preliminary studies and reports from South Africa, where it was first detected. While the variant is still highly contagious and poses a risk to the unvaccinated population, the market seems to have priced in the worst-case scenario and is now adjusting to a more optimistic outlook.
• The U.S. Senate passed a bill on Thursday to raise the debt ceiling by $2.5 trillion, averting a potential default that could have triggered a financial crisis. The bill now heads to the House of Representatives, where it is expected to pass easily. This removes a major source of uncertainty and anxiety for the market, as well as for the economy and the government.
• The U.S. economy continues to show resilience and strength, despite the challenges posed by the pandemic and supply chain disruptions. The latest jobs report, released on Friday, showed that the U.S. added 210,000 jobs in November, below expectations but still indicating a solid recovery. The unemployment rate fell to 4.2%, the lowest since February 2020, and the labor force participation rate rose to 61.8%, the highest since March 2020.
• The corporate earnings season has been largely positive, with most companies beating analysts’ estimates and reporting strong growth in revenues and profits. According to FactSet, as of December 3, 97% of the S&P 500 companies have reported their third-quarter results, with 82% of them surpassing earnings expectations and 72% of them exceeding revenue expectations. The blended earnings growth rate for the third quarter is 39.8%, well above the historical average of 7.3%.

These factors combined to create a favorable environment for stocks, especially for those sectors that benefit from economic reopening and growth, such as energy, financials, industrials and consumer discretionary. The market also shrugged off some negative news, such as the new travel restrictions imposed by several countries to contain the Omicron variant, and the rising inflation pressures that could prompt the Federal Reserve to tighten its monetary policy sooner than expected.

The question now is whether this rally can be sustained in the coming weeks and months, or whether it is just a temporary bounce that will fade away as new challenges emerge. Some analysts warn that the market is overvalued and vulnerable to a correction, especially if the Omicron variant proves to be more dangerous than anticipated, or if the Fed signals a faster pace of tapering and rate hikes. Others argue that the market has room to run higher, as long as the economy maintains its momentum and corporate earnings continue to surprise on the upside.

As always, investors should be prepared for volatility and uncertainty in the market and diversify their portfolios according to their risk tolerance and time horizon. The U.S. stock market has shown remarkable resilience and adaptability in the face of unprecedented challenges in the past two years, and it may continue to do so in the future.