Market Update – 12/3/2021

The spread of the new virus variant Omicron has dominated stock market news since last Friday. The market dislikes uncertainty, especially when it is overextended. In addition, the market’s demand for drawdown protection in the first half of November had dropped sharply (indicating that it was unprepared for unexpected surprises) which has caused recent sharp price fluctuations.

CNN Fear and Greed Index shows that the market is currently in extreme panic. As this does not necessarily mean that the market will rise or decline sharply, we still recommend not to panic sell or increase positions under the influence of the media. If the recent decline is too much for investors, it can be moderately reduced during the rebound stage.

Another news that caused the market to fall this week is that Jerome Powell, Chairman of the Federal Reserve Board, no longer believes that inflation is temporary, and announced that he will accelerate the reduction of purchases to control inflation. The Fed’s monetary policy will have little practical effect as the ongoing inflation is caused by tight supply chain issues, but it may be possible to influence market expectations to control price increases. If prices can be controlled, the Federal Reserve will lessen the pressure on reducing funds and raising interest rates.

President Biden declared that some supply chain pressures have been alleviated, and retailers have sufficient stock to meet the shopping needs of the Christmas season. Public consumption has not continued to accelerate through Black Friday and Cyber Monday, indicating that private consumption demand may be gradually returning to normal.

Omicron is the biggest unknown factor. Some predict that Omicron will worsen supply chain issues and increase inflation. Others believe that the new virus strain will slow down economic activity, bring down oil prices, and ease inflation. There is no need to over speculate the impact of Omicron before clear data reveals a trend.