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Stocks Set for Strong Start to 2022 Despite Omicron

U.S. stock futures point to a positive start to the new year on Wall Street as investors shrug off the potential economic impact of omicron on the economy and earnings.

U.S. stock futures were higher on Monday, setting the stage for a positive start to the new year on Wall Street as investors shrugged off the potential economic impact of record Covid-19 infections and focused on so-called reopening stocks like Alaska Air Lines, Carnival, and Norwegian Cruise Lines.  

As of 7 a.m. ET, futures contracts tied to the Dow Jones Industrial Average were indicating a 161-point opening gain, while those linked to the S&P 500 were priced for a 26-point rise. Futures tied to the tech-focused Nasdaq Composite were indicating a 101-point rise at the start of trading as benchmark 10-year Treasury note yields held at 1.5%.

The positive momentum follows a strong close-out to 2021. The S&P 500 rose nearly 27% for the year, while the Nasdaq Composite and Dow also posted large returns. Stocks fell slightly on Friday, but the S&P 500 and Dow were positive for the final week of the year.

So-dubbed reopening stocks were higher in premarket trading. Alaska Air  (ALK) - Get Alaska Air Group, Inc. Report was up 2.3%, while Carnival  (CCL) - Get Carnival Corporation Report and Norwegian Cruise Lines  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report were up roughly 2% each. At the same time, some work-from-home Covid-related shares were also on the rise, including Home Depot  (HD) - Get Home Depot, Inc. Report, Walmart  (WMT) - Get Walmart Inc. Report and Clorox  (CLX) - Get Clorox Company Report, which were all up more than 1%.

Along with Tesla  (TSLA) - Get Tesla Inc Report, which reported forecast-beating fourth-quarter and full-year delivery numbers, big automakers also saw their shares moving higher, with Ford  (F) - Get Ford Motor Company Report and General Motors  (GM) - Get General Motors Company Report each rising 1.6%.

Friday’s calm and light trading session capped off a busy year in markets highlighted by extremes that drove investors to bid up all kinds of companies and sectors seemingly irrespective of market conditions, and, in many cases, valuations.

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Heading into 2022, analysts and market-watchers expect investors to take a more sober view of ongoing market gains amid the continued threat of the omicron Covid-19 variant and on increasing expectations that the Federal Reserve and other central banks will pull back on the stimulus that has kept cash sloshing around the global economy since March 2020.

"Our base case is that 2022 will be a year of slower growth and inflation, a big shift from what investors have become accustomed to since the pandemic-induced recession of 2020," said David Rosenberg, chief economist and strategist with Rosenberg Research & Associates. 

"Against this backdrop, we believe expectations should be for weak stock market returns, a general outperformance of defensive/defensive growth sectors, and higher volatility." 

That in turn will likely prompt reassessments of sectors like travel and tourism, which have been upended by the omicron surge, as well as other industries like manufacturing, which have been slammed due to the ongoing global semiconductor shortage as well as global supply chain disruptions.

"While supply chains are still strained, there have been positive developments that suggest inflation should be on a downward trajectory in 2022, particularly in the U.S.," Rosenberg said.

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.