The major stock market averages closed lower in volatile trading last week. The Dow Jones Industrial Average fell .9% to 34,580 – the NASDAQ Composite shed 2.6% to 15,085 – and the Standard & Poor’s 500 Index declined 1.2% to 4,538. Two primary forces behind the market’s drop were a more hawkish (meaning less accommodative/stimulative) Federal Reserve and worry over a new COVID variant.
Federal Reserve Chair Powell testified last Tuesday “the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases…..perhaps a few months sooner.” Stock investors did not like those words showing a more hawkish Fed. Powell also stated it’s probably a good time to retire that word (transitory) – which it previously used to describe inflation. Bottom line, the Federal Reserve is pivoting to an inflation-fighting mode and markets are digesting the change in tone and policy at the Federal Reserve.
Another headwind for stock prices last week was worry over a new COVID variant (omicron). While things are still early on here, reports so far indicate that people who have tested positive for the omicron variant have not developed severe disease. Of course, the importance of this transcends financial markets, and is something the world will be continuing to monitor.
Wrapping up with the key economic data from last week, the headline numbers for the November Jobs Report were mixed. The United States Department of Labor reported the economy added 210,000 jobs last month, well below consensus estimates of 530,000 – but the unemployment rate fell sharply to 4.2%, better than forecasts of 4.5%. Overall, the entirety of the report did not seem to change the Fed’s new and adjusted timeline.
Looking to the week ahead, the major stock indices are all in positive territory so far today, with investors showing a preference for stocks tied more to the reopening, as the Dow is outperforming. With more to learn about omicron, along with a shift in monetary policy at the Federal Reserve, we certainly expect more volatility. Remember, investing is for the long term, beyond different Fed cycles and beyond the current pandemic – investing is a marathon, not a sprint!
All the best – Southport Station Financial Management, LLC