Market Pulse: It’s about time
Special to the Tribune
For stock market investors dull days are few and far between. COVID variant news and the Fed’s policy changes were the catalysts for recent volatility. There will be others.
First the Fed. Jerome Powell said it’s time to retire the word “transitory” when describing rising inflation numbers. Shoppers, drivers and businesses large and small had figured that out a while back. Powell explained the Fed’s use of the word as meaning “not permanent.” But in most cases the price increases the past year won’t be reversed, so they are in fact permanent.
Powell expects even more inflation next year and conceded that, due to the inflation outlook, the Fed may need to end its tapering of bond purchases a few months earlier than planned and thereby set the stage for the first rate boost. Good-bye Quantitative Easing.
COVID will be with us for years, so expect boosters or a re-formulated vaccine every year. Think of the flu. Corporate America will adjust to it as will most Americans.
The one-two punch of the COVID news and Powell’s comments on inflation and rates were too much for some investors. In their over-reaction they sold stocks across a wide spectrum. Shoot first, ask questions later. If the virus will undermine global and U.S. GDP growth next year, a haircut to earnings expectations would be warranted. Fortunately, early results show the vaccine with a booster still works. The picture will be a bit clearer within a week or two.
As for the market, the end of December and January are usually good times for stocks and I expect better days ahead even with the uncertainties caused by the omicron variant, inflation and the prospect of rate increases coming sooner than earlier thought.
Offsetting those negatives is the fact that trillions of dollars are not invested and stocks are more attractive than the alternatives. Whatever rate increases lie ahead, they won’t be large enough to make bonds more attractive than stocks.
Of course, there are stocks and there are stocks. Pfizer (PFE), along with its 3% yield, is an easy stock to hold. We know about their vaccine, but their COVID pill, when approved, will be the preferred treatment to keep infected people out of the hospital. Pfizer will be number one in prevention (vaccine) and number one for treatment (the pill). The financial stocks will do better if interest rates rise, as one would expect and Powell has more than implied. I’m holding Bank of America (BAC) and SPDR Bank ETF (KBE).
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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