Markets Look Shaky
Last month we talked about the bizarre market 2021 presented us with and the bear market many stocks struggled through even as the major indexes continued to make new all-time highs. December continued that trend but, to my mind, the troubling signs continue to mount. Former untouchable leaders like Microsoft and Google now look like they, too, may be rolling over. Indeed, the first six trading days of 2022 saw technology shares particularly hard hit with the Nasdaq declining ~8% while the S&P 500 fell 5%. Tech companies, whose earnings are often promised in the future, are the ones most likely to lose value should the Fed get more serious in fighting inflation with interest rate increases. Last month, market participants expected two interest rate hikes in 2022 with the first occurring in the summer but now that view has switched to three hikes with the first possibly happening in March. Still, as I said last month, I can't help but wonder if the Fed is finally admitting to a problem (inflation) just as it's beginning to end and taking an action that is only going to create a new problem (deflation) in 2022. I'm increasingly coming to the view that 2022 could be a wild ride as we tug back and forth on the inflation/deflation rope.