Capital Market Review - Week Ending December 17, 2021

In a week of volatility, all eyes were on global central banks. From major central banks like the U.S. Federal Reserve and the Bank of England to many smaller banks worldwide, the theme was similar, the rolling back of expansionary monetary policies. Between central bank action and the increasing threat of the Omicron variant of COVID-19, markets ended the week in the red, with the S&P 500 Index falling 1.9%.

While the Bank of England surprised markets by voting to increase interest rates, the Federal Reserve confirmed what was already known, increasing the speed of reductions to their monthly bond-buying program and projecting three rate hikes in 2022. The stock market’s initial reaction to the Fed’s updated policy was relatively mute. These changes were well known before the meeting, and confirmation gave the market certainty, which is almost always has a positive effect. It’s also important to remember that the Fed is still easing policy for at least a few more months.

The Fed’s original plan was to end the $120 billion in monthly purchases in June 2022; now, that timeline has moved up to March.

Many talking heads call this tightening, but the Fed is still purchasing bonds through the first quarter, albeit at lower amounts. It is also important to remember that the Fed looks beyond its dual mandate to how the stock market reacts to its decisions. Even with the current plans updated less than a week ago, the Fed has shown they are following the current environment, and Omicron may force another audible to 2022 plans. Although central banks have been a dominant factor since the pandemic’s onset, the more pressing headline is the Omicron variant of COVID-19. As cases have increased, investors have reacted by moving back into some pandemic favorites, like Peloton and Zoom. The past few trading days have also seen investors move out of stocks and into the safety of U.S. Treasury bonds. The 10-year Treasury yield has dropped about 0.25% over the past month as the Omicron news broke.

As we move into the last two weeks of 2021, with volatility-inducing news increasing, markets may make irrational moves. The end of the year typically has lower trading volume, which makes more significant moves in markets more likely as fewer traders are influencing prices. Look no further than Black Friday of this year to see what markets can do on low trading volume days. This is the time of year to remain calm, enjoy the holidays, and avoid looking at portfolios; diversified portfolios are built for occasions like these.

Author: Joe Clark, CFA | Research Team | Allegheny Financial Group | December 2021

The information included herein was obtained from sources which we believe reliable. This report is being provided for informational purposes only. It does not represent any specific investment and is not intended to be an offer of sale of any kind. Past performance is not a guarantee of future results.

Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.