Markets Pull Back with One-Two Punch!
Last week’s market reaction? Federal Reserve Chairperson Powell announced a sharp change in Fed policy. Only a few months back, rate hikes in 2022 were pretty much off the table.
Last week Powell announced a doubling in the reduction of monthly bond purchases from 15 billion to 30 billion, with the bond buying concluding in March.
We now have 3 rate hikes forecasted in 2022 and 3 more in 2023.
This is happening at a time as the uncertainties of Omicron are rather significant.
As of today, we are seeing professional sport cancellations, Broadway shows, and others being cancelled. Many companies who were transitioning employees back into their offices, are again postponing, and having employees work from home.
I certainly don’t want to be redundant, however the Fed should have concluded the bond purchases several months ago. If so, the narrative could be, rate hikes decisions will be currently dependent on our progress in how quickly we move through Omicron. Oh well! Keep in mind, Powell has changed his mind a few times during his tenure!!!
With the one-two punch of Powell and Omicron, the Nasdaq led the decliners last week, falling (2.94%). The Dow dropped (1.67%), the S&P 500 (1.91%) and the Russell 2000 (1.68%).
Foreign stocks were down (.46%) and Emerging Market stocks (1.75%).
Many firms are already lowering their 2022 GDP forecast. Omicron will certainly slow things down. How much? How long? With what significance? Great questions? The answers will have significant influence on the Federal Reserve, the current economic recovery and of course, the markets!
In addition, firms are also citing reductions in GDP projections, as President Biden’s “Build Back Better” plan was given a sleeping pill by Senator Joe Manchin over the weekend. Many believe if the bill passed, or does pass in the future, it will contribute to economic growth, raising Gross Domestic Product.
Over the last several months, I’ve had conversations with clients suggesting the easy money has been made in the markets. When the Fed reverses monetary stimulus, history has shown, an economic head wind appears at some point during the rate raising cycle.
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- Social Security checks are going up by 5.9% in January
- Medicare Part B premiums are rising to $170.10 from $148.50
- The Taxable wage base is increasing to $147,000 from $142,700
- The SS Earnings test threshold is increasing to $19,560 from $18,560.
- HSA contributions are rising slightly. Singles, $3,650 from $3,600 and Couples, $7300 from $7200.
- 401K Limits increasing to $20,500. Age 50 plus remains the same at $6500.