Market Monitor: It Mutated

Market Monitor: It Mutated

December 08, 2021

November started nicely.  After dealing with a summer of the Delta Variant, there was a temporary tone of optimism that the recovery was getting back on track.  Then, of course, the latest mutation smacked that aside.  It’s impossible to write about the market this month without focusing on two things, Omicron and the Fed. 

Let’s Look at Some Highlights


The day after Thanksgiving, on November 26th, the World Health Organization designated Omicron a variant of concern.  Fresh Covid concerns caused the Dow to have its worse day of 2021, dropping more than 900 points and giving new meaning to “Black Friday” this year.  Markets hate uncertainty, and with Omicron, there’s still lots of it.  How infectious is it?  How sick does it make you?  How effective are the vaccines against it? And more…

Coinciding with those questions about Omicron are questions about its impacts on the economy.  Already countries are imposing fresh travel restrictions, but the lockdowns we saw in 2020 seem unlikely.  We’ve come a long way with learning how to deal with and fight Covid, and it would be extremely surprising if we resorted to the same drastic measures again.  President Biden has recently said his plan to fight Covid this winter does not include shutdowns.  Fresh restrictions would be deeply unpopular, so the response will likely be to continue and re-iterate the vaccine push. 

While Omicron is undoubtedly a risk to the economy, we do not believe it will be anything like we saw in 2020.  For better or worse, as the details about the variant unfold, the next few weeks will likely be volatile for stocks.  Don’t forget volatility goes both ways, so that could be up or down.


In addition to Omicron, the markets have focused on rising inflation and the Federal Reserve’s commentary.  Since the beginning of the year, the Fed has been describing the rising inflation numbers as “transitory,” expecting that certain things like the supply chain issues were causing temporarily high inflation.  Additionally, keep in mind inflation is looked at year over year.  A comparison from 2020, when mandates forced most of the economy to shut down, is hardly a fair assessment. Still, though, inflation this year has been higher than the Fed predicted. 

Remember, the Fed has a dual mandate of stable prices and maximum employment.  The unemployment rate is down to 4.2% in the latest report.  That’s not quite pre-pandemic levels of around 3.6%, but it’s significantly improved from April of 2020’s 14.8%.  The recovery in the labor market and high inflation are causes for the Fed to begin tightening.  Last month, they announced that they would start to slow down its bond purchase program that started to help support the economy during the early days of the pandemic. In testifying to congress, Jerome Powell indicated they may quicken the pace of winding that program down. 

The likely next step following that program winding down is an increase in interest rates.  The market is expecting the first rate hike at some point in the second half of 2022.  If inflation continues to top expectations, the Fed may take action quicker.  Those actions would spook the market.  The thing to remember is the Fed won’t go from easy to tight overnight.  It’ll go from ridiculously easy to very easy.  There is a long way to go before we have a monetary policy that is not accommodative, but if inflation doesn’t start to tame, we may close that distance quickly. 

Source: Bureau of Labor Statistics. October 2021, selected categories, not seasonally adjusted.


  • The S&P 500 is up 26.46% YTD
  • International Index (MSCI EAFE) is up 9.32% YTD
  • Bond Index (Barclays Aggregate Bond) is down 1.47% YTD

Source: Kwanti

The Smart Investor

There’s still time left in 2021 to perform annual housekeeping tasks that will save on taxes and set you up for next year. Be sure you’re contributing as much as possible to employer-sponsored retirement savings plans and health savings plans. It’s the giving season so don’t neglect proper charitable strategies.  If done correctly, they can enhance  your financial plan now and your legacy.In portfolio terms, you should be positioned for the long term. Remember, even with the recent drop; this has been a very good year for markets.  Investing is never perfectly smooth.  Stay the course, but trim sails for the prevailing winds.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.  

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