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Markets Fall on Inflation and Rate Hike Talks Thumbnail

Markets Fall on Inflation and Rate Hike Talks

In a mostly volatile week, the Dow (-1.7%), NASDAQ (-2.9%), and S&P 500 (-1.9%) each finished the week in negative territory, as each day was marked by large movements in both directions.  Meanwhile, taxable bonds were up slightly and tax-free municipal bonds were relatively flat. 

 

There was plenty of news and headlines last week that kept pushing the markets wildly in one direction or the other.  Let’s start with the Fed, who announced on Wednesday that it would be expediting the bond buyback program to be completed in March (rather than July) and set expectations for up to three interest rate hikes in 2022 after the buyback program has concluded.  This is a far cry from less than a year ago when the Fed claimed it wouldn’t raise interest rates until after 2023.  In other words, I am way more apt to believe in actions by the Fed rather than long term predictions.  The Fed’s current actions are mainly in response to the persisting inflation warnings, as its moves are designed to curb the rate of inflation by slowing economic growth.  This comes on the heels of the Producer Price Index (PPI – another measure of inflation) reaching 9.8% over last year, the highest on record since they began measuring PPI in 2010.  The technology industry is far more interest rate-sensitive, which explains why the NASDAQ and tech stocks have been dropping more than the rest of the market.

 

In other pertinent news, retail sales grew an astounding 18.2% over last year, but there are some concerns among pundits that the growth is slowing when compared to the prior month.  Further, the Omicron COVID variant is spreading globally, and causing many countries and venues to shut down due to concerns of additional spreading.  There are some economists who wonder if this is an over reaction to a variant that has a much lower adverse impact to humans.  Fortunately, Moderna and Pfizer have reported that their vaccines are still effective against this new variant.  There is a lot in the news as we enter the Christmas holiday and end of the year.

 

Have a great week and a happy and safe holiday season.


The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results.