Weekly Market Update 12/13/2021
The tug of war between the bulls and the bears remains intense as the yearend approaches, with stocks gaining and losing large percentages on an almost daily basis. Behind these wide swings are worries about the Omicron COVID-19 variant, which is making its way across the United States; fears that the Federal Reserve will soon take a less accommodative monetary stance (the lead bank is to hold its next Federal Open Market Committee meeting on December 14th and 15th); lingering concerns about inflation; and uneasiness regarding the slowdown in job creation during November. On the other hand, manufacturing activity and the non-manufacturing sector still are doing well and there are expectations that vaccines will offer protection against a variant that some now contend will prove less severe than first feared.
COVID-19 concerns have yet to abate on a sustained basis. Should Omicron or a future variant, we can’t rule out stateside “lockdowns” of some degree, if not the severe measures taken in the U.K. and Europe.
A bigger worry, though, is the Federal Reserve. Heretofore, the assumption had been that the U.S. central bank would reduce its bond buying at a measured pace, so as not to slow the business upturn. Now, comments by Fed Chair Jerome Powell suggest growing fears about inflation, thus opening the door to a possible hike in the federal funds interest rate by mid-2022.
We think the elevated market volatility will last for weeks, as the outlook for the Fed, the COVID-19 situation, and the economy (including inflation) may remain up in the air for a while. The fact that stocks had been priced for near perfection before the likely revision in Fed thinking only increases the uneasiness among investors.
Conclusion: At the current level of the market, the danger of event risk is rising. If volatility continues, smart investors seek to avoid panicked moves.