The stock market could become volatile over the next week due to thin volumes that exaggerate moves in either direction ahead of Christmas.

Market volatility was evident over the last week. NasdaqThe market was down 2.9% on Monday, and trailing the major averages weekly. The Federal Reserve’s shift to hawkishness and the widespread omicron Covid variation were two of the major factors driving market swings. Technology stocks were in the middle of these big fluctuations.

Charles Schwab chief global investor strategist Jeff Kleintop said, “As you head into the last 2 weeks of the year we know volume and volatility can pick up.” There’s a chance of Santa’s rally but also the risk that there could be dramatic swings towards the downside due to a lack of volume.

Stocks are generally positive in December, but the Santa Claus rally (the historically positive market performance) is a good indicator of Santa Claus. It occurs most often between the end of December and the beginning of January. Stock Trader’s Almanac. As the saying goes, if Santa doesn’t call, bears may come to Broad and Wall — the street address of the New York Stock Exchange.

Up to now, S&P 500It is up by 1.4% in December but down almost 1.7% week-over-week. For the year, there has been a 23% increase in broad-market index.

This year, the Santa Claus rally is difficult to forecast because of how well the market has performed up until now. Michael Arone is chief investment strategist for State Street Global Advisors. “Building on this momentum is a bold decision.” “Volumes will decrease and this is likely to cause greater volatility at year’s end. I wouldn’t be surprised if the markets closed strongly in the new year, however, with Fed tightening and the Omicron variant, it seems that anxiety levels are high.

The idea of an early-January rally in December or January is still being considered by strategists. It may be harder for seasonal year-end buyers, however, to help the market rebound from the selling pressure. A lackluster market can make it difficult to forecast how stocks will trade through January.

“I think it’s going to be hard to get a real tell on the market — the light volume and the fact there’s going to be relatively little economic news or corporate news. Kleintop said that it will only be incremental news on the omicron.

According to him, earnings have been an important catalyst for stock prices in recent years. Companies beat estimates and raised guidance. If stocks move lower, this could change the direction of the earnings season that begins in January.

We might see a lot more dividend increases this time. He said that there is a lot cash available. Kleintop indicated that the expectation is for a mere 8% rise in corporate profits by 2022. This could be higher if companies manage their margins well than they expected.

The following economic releases are worth your attention in the weeks ahead. The market will remain most focused on personal consumption expendituresNext Thursday will be the PCE deflator, which is the most closely watched inflation data by the Federal Reserve. Follow the report November’s hot consumer priceThe index was 6.8% higher year-over–year.

Arone stated that the market would also be monitoring the consumer confidence index releaseNext Wednesday, inflation expectations. University of Michigan consumer sentiment indexThis publication is available on Thursday.

The next week will also see key indicators for real estate, including existing home sales and new home sales. Also, Thursday will see the release of durable goods.

On Friday, the market will be closed because of Christmas.

Confused about the Bond Market

Bond yields dropped in the week after stocks moved up, particularly following the recent stock market gyration. Fed announced Dec. 15 that it would speed up the end of its bond-buying. The central bank provided an updated forecast of the interest rate, which indicated that they expect three more hikes in next year’s rates than previously forecast.

In addition, the Fed removed from its statement any reference to inflation being “transitory”.

The movement in yields on bonds is opposite to the price. Market professionals found it surprising that rates fell. You would expect a rise in yields on the lower end of market. This is the area most affected by Fed policy. The example of the 2-yearThe Treasury yield fell to 0.64% on Friday afternoon. This was below its 0.67% mark before the Fed announcement.

This is the benchmark 10-yearThe yield was at 1.44 percent before the Fed made its announcement. The yield had fallen to 1.37 % by Friday morning. It was around 1.41 % in afternoon trading.

After Fed Governor Christopher Waller stated that the central bank might raise interest rates in March, yields rose initially Friday afternoon. Goldman Sachs economists expected a March increase, however most expect the Fed to delay until May or June as it is ending its bond program.

I think people are scared by the omicron fear. Michael Schumacher, Wells Fargo, said that the long-end is weighing down. The front end isn’t very logical. The Fed just gave us this… Powell is the right person to give Powell’s orders.

China is easing its stance?

The Fed and Bank of England recently tightened their policy. However, there may be another superpower economics doing the exact opposite.

Kleintop and Schumacher suggested that a positive surprise could be coming from China before Monday’s trading.

We’ll be all watching China on Monday to see how they handle their loan prime rates. Kleintop stated that there is a possibility they might reduce it.

He stated that China’s re-inflation of their economy would provide a boost for global growth.

How to get started

Kleintop suggested that investors must remain completely invested. Kleintop said that this is because there have been many changes in the market leadership. Investors should diversify more.

Every time there was a value breakout, another virus epidemic swept it away. Kleintop said that growth stocks should have outperformed here as the number of cases increases, but hasn’t reached a new high in value relative to their previous performance.

Kleintop pointed out that the technology sector is extremely valued. Its price-earnings ratios are 10 points higher then the 20-year-average. On Friday, global tech had a forward price-earnings of 28.5 That compares to global tech, which traded on a 12 month forward price/earnings ratio (9.5), about nine percentage points below its average.

Kleintop noted that “This gap is the greatest we have ever seen between value and growth sectors.” Since before Omicron, we haven’t witnessed tech surpass energy in terms of highs. The Fed is certainly weighing down valuations. There’s also the possibility that less liquidity will be flowing into the stocks of choice.

Kleintop indicated that there is no big market gain in 2022. This year was similar to this one. Investors should consider looking abroad for greater gains.

His statement was: “We expect a positive year in equities, but not as strong as this one.” He said that there was a chance of Europe and the international markets outperforming their peers next year.

Week ahead calendar

Monday

10:00 a.m. Leading indicators

Wednesday

8:30 a.m. 3. Quartal GDP

10:00 AM Consumer confidence

10:00 a.m. Existing home sales

Thursday

8:15 a.m. Jobless Claims

8:30 a.m. Durable goods

8:30 a.m. 8:30 a.m.

8:30 a.m. PCE deflator

10:00 a.m. New home sales

10:00 a.m. Consumer sentiment

Friday

Christmas Holiday: No Markets