Market Update| The Return of Market Volatility| December 6, 2021
Clinton Orr - Dec 06, 2021
At one point, in the US, the S&P 500 index went 29 straight days without a daily change of more than 1%. That is rare.
To date, 2021 has been a very calm a year. Unusually calm. At one point, in the US, the S&P 500 index went 29 straight days without a daily change of more than 1%. That is rare. The few times this year we did see larger moves, if that move was negative, the market quickly bounced back. September was the first bout of turbulence in 2021. After a rally in October, volatility returned in November. The recent turbulence was not just in Canada or the US, stock markets around the globe were bumpy, commodities declined, and crypto currencies sold off. November was a down month.
The volatility started after US Thanksgiving. The news of the Omicron variant seemed to be the catalyst. We do not know a lot about the variant, and I think that is part of the problem. If there was a clear outcome, businesses and investors could use that information to make adjustments. Uncertainty is almost worse than bad news, as markets do not to like uncertainty and tend to assume the worst. The initial market volatility was quite similar to what we saw in 2020. Travel and leisure companies were hit particularly hard, while companies that could benefit from lockdowns, think Zoom, Peloton and Clorox, did well. However, this “pandemic trade” was short lived.
A few days after the initial turbulence Federal Reserve Chairman Jerome Powell testified before a senate committee in the US. Essentially, he said what anyone that has shopped recently already knew, that inflation was here and would stick around longer than initially expected. In response to inflation being higher for longer, Powell hinted that the Fed might speed up the removal of their bond purchase program. This program is one of the ways the central bank continues to stimulate the US economy. The original plan was to phase it out by June 2022, once the bond buying was done, many expected rate hikes to follow. An accelerated schedule would mean interest rates could rise sooner, which seemed to add fear to an already spooked market.
The above is the consensus narrative of what happened the last two weeks. In times of turbulence, I try not to get too wrapped up in the narrative. Short term market movements are not always rational and rarely fit a story. So far, the underlying up trend in the markets is still intact and the current turbulence seems like a correction. If that changes, we are prepared to become more defensive with our portfolio.
Regardless of the reason for the turbulence, it is never fun to endure market volatility. If you have questions or would like to review your plan, please let us know. There is a whole team at your disposal, and we are happy to help.