As most of you follow the news and stock market, you may be wondering what is going on. There are basically three things happening: virus fears, inflation fears, and profit taking.
Virus fears. As we know too well, there is no easy getting out of this virus funk. We thought we conquered it with the vaccine, and re-opening stocks like hotels and cruise companies rebounded nicely. Then the Delta variant came and those stocks retreated. Then the booster came and they rebounded again. Now, the omicron variant has reared its ugly head to create more concern about getting back to normal—and the re-opening stocks—and the wider stock markets—have retreated again.
The hefty short-term gains in re-opening stocks that strongly rebounded in 2020 have stalled in 2021, but there is still lots of room to run if investors can be patient. Travelers are eager to get moving as Thanksgiving airline traffic illustrated.
Inflation fears. Inflation rates have kicked up, but government officials, namely those at the federal reserve who manage our money supply, have been downplaying this inflation by proffering that it was only a temporary situation as the economy rebooted from the covid shutdown. In the last few days, however, the Fed has indicated that the inflation trend has elevated to the point where they may have to take action to reduce this inflation by reducing their economic stimulation activity. The markets don’t like this threat of taking the punch bowl away from the party and have reacted by driving down stock prices.
Profit taking. Even though November stock market performance was lackluster, several components of the market, such as technology stocks, have had a good year overall. Often as we approach the end of the year, short-term investors sell off holdings to preserve their earlier gains. This activity also puts downward pressure on stock prices.
What will the final month of the year bring? Nobody knows, but we can always hope for the traditional Santa Claus rally. Ho ho ho!