Third quarter earning’s season wrapped up over the last two weeks with very positive results. Average profits for S&P 500 companies were 39% higher than third quarter 2020. Retail sales numbers were also very positive as October showed a 1.7% increase over September. Furthermore, the increases were across retail stores, restaurants and online sellers – suggesting the increased sales figures were across the broader economy and not limited to a particular sector.
Returning from the Thanksgiving holiday, investors were surprised to hear a change in strategy from Jerome Powell, chairman of the Federal Reserve (Fed.) Powell announced that the Fed will discuss speeding up its taper program, which could eventually lead to an increase in interest rates. This move suggests that fighting inflation has become the most important priority to the Fed, overshadowing the economic disruptions caused by COVID. “At this point, 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,” Powell said. “I expect that we will discuss that at our upcoming meeting.” The announcement triggered a Black Friday selloff where all major markets posted losses.
More significantly, news at the end of November centered around one word: Omicron. This previously unknown variant to COVID took the news cycle by storm. First detected in South Africa, this new variant has been found in more than a dozen countries. The World Health Organization (WHO) has labeled this strain a “variant of concern”.
Addressing this new variant, Moderna CEO Staphane Bancel said, “…existing vaccines could be less effective against the new variant,” and, “it could take months to develop and ship an Omicron-specific vaccine.” Markets reacted as fear of renewed shutdowns and a slowing economy spread.
As always, we encourage a long-term view of the market and discourage making any investment decisions based on anxiety or fear. Despite this recent news, the markets have recorded significant gains year-to-date.
As of November 30th, the markets all posted negative returns for the second half of the month. The Dow dropped 1,604 points (4.44%), the S&P 500 lost 116 points (2.47%) and the NASDAQ decreased by 316 (1.99%).