In this stock market update, Steve Wolff (Managing Partner at WWM Financial) discusses what has occurred in December. He discusses Jerome Powell and the Fed’s stance on interest rates, Covid and its variants and how the market has reacted. He also discusses small cap stocks to large cap stocks, the unemployment rate, and the US economy.
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Stock Market Update 12/3/2021
How has the market reacted because of Omicron? Is the stock market still goin up? Steve Wolff, Managing Partner at WWM Financial dives into what has occurred in November and where we are currently with the stock market.
Steve discusses Jerome Powell being re-elected, the Omicron variant, inflation and Moderna’s take on vaccines.
This is Steve Wolf with the November 2021 monthly review. Before we talk about what happened in November, let’s get some legal business out of the way. What I’m about to say is strictly for informational purposes only, and it’s not meant to be a recommendation. Before you buy or sell anything related to anything I’m saying about the markets or individual securities consult your financial advisor to make sure that it is appropriate for your personal situation.
All right, what happened in November 2021. As New York Yankees hall of Famer Yogi Barra once said, it’s deja vu all over again. A new variant to the COVID crisis is discovered and the stock market takes a dive. Where have we seen this before? While I was still recovering from my tryptophan coma from Thanksgiving when on Friday an South African official said there was a new strain of COVID 19 called Omicron. That was discovered that was enough to ruin the shorten Friday trading session as all the stock indices were down sharply for the day on that news.
Now on the last day of November, which was Tuesday, it looked like the markets were going to recover as the futures were showing a positive stock market. Then an article came out in the Financial Times that the CEO of Moderna, which is one of the companies that has been manufacturing the COVID vaccine and certainly is at the epicenter of all this, he basically said that due to the amount of spike protein mutations to the COVID 19 virus, and there’s currently about 32 of these, there is no way the current vaccines would work extremely effectively against the Omicron variant. Well, that was the match that lit the downward spiral in futures. And that worked its way sharply into a lower open on Tuesday.
But then the market started to recover and it looked like it was going to shake off the news, of course not so fast. Then Federal Reserve Chairman Jerome Powell poured gasoline on the fire somewhere around 7:30 AM, California time at the time I normally like to enjoy my breakfast. And he said in a Senate hearing that he was basically taking an about face in the policies he had championed for these many months. In a nutshell, here’s what he said. One, he’s considering ending the taper of asset purchases sooner than originally planned. Two, it’s time to stop using transitory when talking about inflation, which I kind of laugh at because we’ve been talking about that for two or three months now. He said that inflation is spreading, no big news there. The risk of higher and persistent inflation has increased, but he also said the economy is currently strong, but the Fed will use all of its tools to stop inflation. Well, this really spooked the bond market as treasury yield soared and stocks took a dive. That helped to make November a mixed, but mostly down month.
So let’s look at the scoreboard for November of 2021, the S&P was down about 1% for the month. The Dow Jones Industrial Average was down about 3.7% for the month. And the NASDAQ was actually up ironically, 2% for the month.
So what does all this mean for the future, at least for the near future? First, let’s talk about Omicron. Does anyone know how to pronounce this? It’s Omicron, Omicron, we’ll get it. It’s so new no one knows how to pronounce it. So let’s talk about Omicron. I’m certainly no doctor, and I’m not an epidemiologist, but from what I’ve read so far, the Omicron variant is highly contagious, but not nearly as deadly as some of the other variants that have been around. Hopefully it will mean the government will not lock down the economy again, but if the economy does slow because of the virus, this would put a little downward pressure on rising interest rates and inflation. So we’ll have to see what happens there.
Now, we haven’t talked too much about this supply chain bottleneck that’s still going on out there and it’s still a problem. But in time, as I’ve said before, I think this will dissipate and it will ease some of the inflationary pressures. On the other hand, food and gas prices have been up and gasoline and other fuel prices just continue to rise. And at the moment, I really don’t see a reason for it to fall, not at this point. And that’s going to keep some pressure on inflation. Labor is still an issue as companies cannot find enough workers for all the jobs that are out there right now. Now, many of the companies have increased the amount that they’re paying to their laborers. And in some of the cases they’re giving monetary incentives for people to come to work.
In any case, these rising costs will eventually have to be passed on to the consumer. So Powell does have a lot to worry about, and I think he’s going to have to walk a fine line when it comes to the velocity with which rates are increased. Now in the very near future, many of the growth stocks that have had an extended valuation, they’re giving back some of those gains. And I think you saw it yesterday and again today, December 1st as we’re recording this, it happened again today. And as you know, I’ve been saying that this might happen over the last couple of months in the commentaries that I’ve had. So I expected some sort of a short term downturn. So to me, this is not really a big surprise and it shouldn’t be to you. What has changed, however, is the commentary by the Federal Reserve. So growth stocks might be in the doghouse for a while, but we’ll just have to wait and see.
So that’s a wrap for the month of November. We’ll see you back here at the beginning of January when we start a new year and we’ll discuss what happened in the month of December, have a happy new year everyone.
*WWM Financial is an SEC Registered Investment Advisor