In an extremely volatile week, the Dow (-0.8%), NASDAQ (-2.6%), and S&P 500 (-1.2%) fell for the week. In fact, four of the last six trading days (since Black Friday) were down sharply, while the other two days were up sharply. Meanwhile, both taxable and tax-free municipal bonds were the beneficiaries of this fear-driven volatility, as they gained about 0.2% - 1.0%, depending on the type of bonds.
The headlines have been driven by the emergence of the Omicron variant of the COVID virus, as it first appeared in Africa, and is now appearing in the US and other developed countries. Did you notice that I referenced “headlines”? Well, headlines are like the emotions of the market which can drive extreme volatility, and we always hope that cooler heads prevail. These headlines actually over shadowed other headlines such as Congress agreeing to avoid a government shutdown before last Friday’s deadline. Meanwhile, the fundamentals also weren’t positive, as the November jobs report came in substantially weaker, as 210,000 jobs were gained, compared to a 550,000 new jobs expected. Further, the markets are continuing to react to the Fed’s announcement of expediting it’s tapering event, which simply means that the Fed is trying to reach its goal of raising interest rates sooner than previously predicted, as inflation continues to rear its ugly head in the economy.
I predicted a couple weeks ago that there would increased volatility, and that was before the Omicron variant appeared. So, expect more volatility to come.
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