The Omicron strain of the Covid, first identified in South Africa, rattled the stock market on Black Friday after the World Health Organization labeled it aa a variant of concern. The Dow Jones slid 900 points to suffer, basically its worst since Oct 2020. Stock futures indicated another big down day following a rebound on Wall Street as investors monitored the ongoing health crisis.
The stock market rebounded swiftly from the pandemic bottom in March 2020 thanks to the massive fiscal and monetary stimulus measures the government and the Federal Reserve orchestrated to support the economy. However, the excess money supply in the system could create certain economic and political problems.
During turbulent times, it’s also important to be in a safe and have a well-balanced portfolio. You can reduce your risk without reducing your returns. It is but impossible to market-time this. Even if one is a great market timer, the things that are happening can change the world, so it changes what could be priced into the market. Cash is not a safe investment, is not a safe place because it will be taxed by inflation.
Key inflation gauge spiked in October, accelerating at its fastest since early 90’s. The personal consumption expenditures price index excluding food and energy, a measure closely followed by Federal Reserve policymakers, rose 4.1%. The central bank has been wrestling with inflation that has been more aggressive and persistent than they had anticipated. The US Fed has said they believe inflation is at the point where they can start gradually reducing the amount of monthly stimulus they are providing through bond purchases.
One cannot raise living standards by raising the amount of money in credit in the system because that’s just more money chasing the same amount of goods. It will affect the financial markets in ways we’ve seen before and it will affect the inflation rate and it won’t raise living standards in an important way. As inflation then begins to bite, it has political consequences.
What we are seeing happen has played out many, many times in history; it’s like watching a movie over again. All one has to do is to learn from history and play accordingly.