Stocks Drop As Year-End-Rally Now In Serious Doubt

 | Dec 21, 2021 12:13AM ET

Stocks finished the day lower, with the S&P 500 dropping by around 1.1%. The index had been down nearly 1.8% at its worse. The market seems to be facing several headwinds that will make it hard to see an end-of-year melt-up.

COVID cases are on the rise, the fiscal stimulus deal appears to be shelved, and the Fed is tightening monetary policy all at the same time. The equity market is sure not to like this situation very much; it shouldn’t.

Before this is all said and done, the markets will likely be screaming for the Fed to reconsider its tapering schedule and demand the Fed stop the taper altogether. Give this a few more days to all seep into the market’s train of thought. I don’t see how this end-of-year rally is going to manifest itself.

h2 S&P 500 /h2

Even the VIX is hardly positioned to help. The VIX was at 27.35 at its peak on Monday and closed at 22.86, a pretty significant drop, and all the index could rally was about 60 bps, hardly equal to the big Vanna rally we saw after the Fed meeting. Perhaps the S&P 500 attempts to fill that gap at 4,620, and the VIX pushes back to 20. But I’m not too fond of the macro factors heading into the final days of the year.