Well, this has turned out to be an unusual year in so many ways. The much-anticipated economic recovery unfolded amidst a backdrop of supply chain issues, labor shortages, rapidly rising costs, and the reemergence of the COVID virus not once but twice. What started out as a year filled with hope and optimism, turned to one of fear over the summer, followed by greed and speculation, and ending with another bout of panic. While this fourth quarter has similarities to that we experienced in 2018, I remain optimistic that most of the issues we face are transitory and some form of normalcy will return next year. Perhaps the best thing to happen this week is that the Federal government has once more averted a shutdown. Both houses of Congress passed bills to keep the government funded through February 18, 2022. This means they can return home for the holidays while delaying the inevitable for another two months. So, what is moving markets? First and foremost, it is an overreaction to the emergence of a new variant of COVID which will undoubtedly spread quickly and cause concern. Regarding Omicron, no one is certain yet what its impact will be. Several countries in Europe have wasted no time in banning travel, reinstituting mask mandates, and even openly speculating on further lockdowns. It is improbable that the same could happen here, although both vaccine and mask mandates are reemerging as contentious possibilities. In the worst-case scenario, lockdowns lead to further worker shortages, supply chain issues, and a deterioration of the economy. More likely, is that this variant will spread rapidly but have lesser health effects and overall a smaller impact on the economy. However, the second factor roiling markets this week is the Federal Reserve’s announcement that “transitory” is no longer a thing, and speeding up the taper is on the table. You remember when Jerome Powell, the chairman of the Federal Reserve, infamously said inflation will be transitory. That was approximately six months ago, and not only has it not been transitory but in many regards, it has accelerated. This week he said, in a nutshell, that we all misunderstood him. He meant that the rise in inflation wasn’t permanent. Oops, our bad? Anyway, he went on to suggest that it will take up the issue soon and could open the door to speeding up both the taper program and quite possibly the first interest rate hike. To a large extent, this is why the Nasdaq, which is technology heavy, was hit hardest this week. What had been a risk-on atmosphere for the past few months has quickly devolved solidly into risk-off. Lastly, the nonfarm payrolls report came out today and fell far short of expectations. Economists had been expecting 550K to re-enter the job market but it appears only 210K did. This is not the first month for disappointment with the jobs number. Recent months have seen declines in the number of jobs gained despite solid numbers over the summer. It was widely anticipated as fiscal stimulus ended, eviction moratoriums concluded, schools reopened, and daycare was sorted that people would return to work. This has not been the case. The two largest groups that have yet to return are those age 65 and above who presumably retired and may never come back, and women age 25-54 who may be slow to return due to childcare as the chief reason. It appears we’ll have to wait a little longer in this regard. In closing, I want to turn to a more serious matter. Recently we’ve seen a rise in smash and grab robberies throughout California and more recently states such as Minnesota, Florida, and North Carolina. In light of this, I came across a memo that Bank of America put out to its employees this week. Amid a surge in violent crime in New York City, Bank of America is warning its junior staffers to ‘dress down’ to avoid becoming a target. Apparently, the city has seen a 15% increase in felony assaults over the past month. While this memo is aimed at crime in NYC, crime is not limited to just NYC. We’re seeing upticks across the nation. While it is hard to think about these things, especially at this time of year, it is worth noting. When out and about, please pay attention to your surroundings. These are typically crimes of opportunity. We want you to have a safe and happy Christmas.
Bruce J. Mason, MBA