COVID & Hurricanes
Thanksgiving kicks off the holiday season in the U.S. Coincidentally, it also kicks off the Flu & COVID season. South Africa announced that a new COVID19 variance is spreading throughout the country. Apparently, this variant MAY be more contagious and deadly than the Delta variant. I feel that the media is treating COVID variants like hurricanes in Florida. The first hurricane of the season gets tons of coverage, and the later hurricanes get less coverage as people become numb due to news overload. Scientists in South Africa have already stated that the "O" variant is not that bad. However, the international community reacted very defensively and started to close their borders. On the Friday after Thanksgiving, the U.S. markets are only open half of the day, and trading volume is generally very light. The lack of trading volume increases the volatility as there may not be enough buyers or sellers on the other side of the trade. This phenomenon probably played into the S&P 500 dropping 2.7% in half a trading day.
All sell-offs are concerning; however, this sell-off wasn't too concerning to me. We've had a great year, and I expected the market to take back some of those profits. The market validated my thoughts on Monday as it increased 1.3%. However, I was only correct for 24 hours. On Tuesday, November 30th, the markets corrected again and dropped 1.89%. That sell-off was caused primarily by the Federal Reverse Bank (Fed) changing its position from transitory inflation to more sustaining inflation. The Fed stated that the economy is very strong, but due to inflation concerns, they are beginning asset tapering earlier.
Fed Chairman Jerome Powell said, "The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner."
I'm expecting a volatile stock market for the next few months. We have many uncertainties in the near future: 1) "O" COVID19 variant, 2) potential global lockdown, 3) rising inflation, and 4) Fed tapering. All these uncertainties will reveal themselves over time.
You know it’s bad when the Barclay’s Aggregate Bond ETF (AGG) was the top performer and the S&P 500 ETF (SPY) was down over 2%. Investors were selling their stocks and running to “safe” bonds.