By Lewis Krauskopf

NEW YORK (Reuters] – Shareholders who took advantage the stock market’s current swoon to buy shares in the hope that the end of the year brings renewed strength to equity markets, even though worries about the Omicron variant or a more aggressive Federal Reserve loom.

The index has seen a two-day rally that nearly erased its more than 4% loss after Omicron virus emerged. This could be due to a possible hawkish turn by the Federal Reserve.

Omicron is still uncertain, but optimism about milder forms of the disease has helped to boost markets. Investors worried that Omicron may accelerate normalization of monetary policy to curb rising inflation may be disappointed by next week’s Fed meeting.

However, some investors believe the pullback has tempered the market after weeks of consistent upward movement. It could be setting up for additional gains in December, which is a traditionally strong month for stocks.

We saw an improvement in investor sentiment as a result. In emailed comments, Keith Lerner (co-chief investment officer, Truist Advisory Services), said that this indicates there is still room for good surprises at year’s end.

Market turning points can be seen as extremes of investor sentiment, which could lead to opportunities for stock purchases or sales.

After some periods of calm trading, indicators of investor sentiment have shifted towards caution with last week’s selloff.

The Cboe Volatility Index (also known as Wall Street’s fear gauge), reached 35.32 last Wednesday, the highest point since January. This index was close to 22 on Tuesday, despite a recent dip.

Numerous other market indicators, such as put-call ratios and volatility futures prices, indicated that there was a lot more “froth/downside” than expected, Chris Murphy, Susquehanna International Group, stated in a note.

In contrast, last week’s American Association of Individual Investors survey showed that investors are still bearish about the direction of markets. Deutsche Bank (DE:). The measure of investor equity positioning experienced its greatest decline since March 2020.

BUILDING INTEREST

The Omicron-fueled pullback also attracted its fair share of buyers. BofA Securities customers were the “big sellers of the dip” last week. They bought $6.7 trillion worth of equity on a net basis. It was the biggest weekly purchase since 2017.

Baker Avenue Asset Management is one of the recent buyers. They added Apple Inc shares (NASDAQ:) to their portfolio as stocks tumbled.

Lip stated that Omicron’s situation was likely to be less than the market expected.

Deltec Bank and Trust was a private bank and manager of multi-asset portfolios in the Bahamas. It also “selectedively” added equity positions to the pullback. Devon Energy Hugo Rogers is Deltec’s chief investing officer.

Rogers stated that “We believe the demand is very strong in terms of economic activity (United States)”.

Many investors still think there may be more volatility ahead, even if the Fed becomes more aggressive. If this happens, stocks will lose their appeal and the Fed raises rates faster.

According to CME Group’s FedWatch program (NASDAQ:), investors now see a 60% chance that the Fed will increase its overnight benchmark lending rate by May 2022 from their current levels. This is compared to the 24% probability a month earlier.

Matt Maley, Miller Tabak’s chief market strategist, wrote that, “Given recent changes in Federal Reserve policy, it is our belief that the suckers” will be those who don’t take advantage.