Stock markets remain extremely volatile. Many in the media and inside the trade want to continue talking about the new Covid variant or the more hawkish Fed rhetoric, but I don't think that's all of the story.

You can't tell me the large traders and big-money players didn't see the Fed rhetoric coming. I argue it's perhaps been the most forecasted "taper" or rate hike story ever. In other words, everybody that has any amount of large money in the markets knew the Fed was looking to hike rates two and perhaps three times in 2022. All the "smart money" was well aware that the Fed was becoming less dovish and that concerns about inflation were getting more real and rates were going to start ticking higher.

Omicron

At the same time, who in the world would be surprised about a new Covid variant coming out of South Africa where the vaccination rate is well under 30%. Seriously, we are always going to see "new" health threats coming out of South Africa. I argue, that many stocks were simply priced to perfection and the market simply isn't prepared for the bad news. Meaning several large traders and investors quickly found themselves out of position and off-balance.

With the first official, Omicron Covid variant confirmed in the U.S. yesterday the myriad of "unknowns" seems somewhat endless.  There are some who are saying if it's more contagious but much less harmless it might help snuff out the more dangerous Delta variant and help us get more herd immunity. I've heard everything under the sun the past few days...bottom line, nobody knows! But, again, the one thing it feels like is some of the larger players think they might be out of position "IF" things happen to go the wrong way.

As they turn their boats and readjust they could create some serious wakes in the water. Meaning higher potential for a more sizable correction, especially if headlines start painting a more alarming picture about the new variant.

Bulls aren't so much concerned about a renewal of lockdowns as they are about the additional pressures another major Covid wave might have on already crippled supply chains and the resulting inflation that it has been driving.

Federal Reserve policy

The Federal Reserve is already indicating a faster timeline for ending its bond-buying program and a start to interest rate hikes, and ever-higher inflation could accelerate that further.

There is nothing in recent data to indicate the Federal Reserve might walk back its more hawkish tone either. ADP's private payroll report came in better than expected raising expectations that the official November jobs report will hit close to analysts’ call for a gain of around +500,000. That's close to the employment gains seen in October which Fed Chair Jerome Powell considered "good," so a repeat only provides more justification for the central bank to relax its supports.

Data from ISM yesterday did show a pullback in prices paid by manufacturers but one month of declines is too soon to declare inflation is on the decline. Investors are also keeping a nervous eye on Washington as two important deadlines come in to view. U.S. government funding expires tomorrow (Friday) but lawmakers are expected to pass a continuing resolution that will shift the government "shutdown" deadline out to early 2022.

Additionally, the deadline for lifting the U.S. debt ceiling is coming up on December 15 and members in Congress remain divided. The Democrats believe they can solve the issue through budget reconciliation if the two sides can't work out a deal but there are concerns about a tight vote. Either way, it increasingly sounds like this is going to get dragged out until the last minute, adding another layer of uncertainty to an already pretty full plate.

Today, the Energy Information Administration's Natural Gas Inventories may draw some added attention as worries persist about short supplies and skyrocketing costs this winter. Today's earnings highlights are Dollar General and Kroger. Stay nimble...

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