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Weekly Market Update for December 17, 2021

by Jim Ulland

The market grew increasingly anxious this week with the Omicron news and the potential for more lockdowns or other economic restrictions.  The fear that this variant could sweep across the country and bring the recovery to a halt was widespread. Yet, Pfizer’s treatment pill was shown to reduce hospitalizations, and more were getting vaccinated and boosted.  Other studies showed that Omicron had higher rates of transmission but milder symptoms. None of the positive news seemed to matter as the market fell four of the five days.

The only day the market rose was Wednesday when the Fed announced its latest views on interest rates and inflation.  The Fed plans to raise the Fed Funds rate from about 0.2% to 0.9% during 2022.  These rates are still historically low; however, this is a policy change in the direction of higher interest rates.  Rising interest rates are normally a headwind for stocks.  The Fed also confirmed that it had miscalculated inflation and that it was likely to stay higher than their target until the end of 2022 when it once again should go below 3%.  The latest inflation report showed November producer prices rose at an annualized pace of over 9%.  Rising producer prices will push up future consumer prices.  The combination of a changed direction in the Fed’s interest rate policy and a huge rise in the Producer Price Index hurt the market.

The current thinking is that Covid is keeping a lot of workers from returning to the work force.  Unemployment filing were historically low again although a little higher than last week.  Strong demand and a shortage of workers does force wages higher and feeds inflation.

Despite the market’s unsettled state and the inflationary flames, interest rates stayed virtually flat for the week.  This helped our fixed income strategy, Intelligent Fixed Income (IFI) to have strong performance.  The total return of this strategy is over 4.5%, excellent in this low-yield environment.  Our equity strategies declined with the downward move in the SP 500 of -1.68% and the NASDAQ of -2.95%.

Our hope for 2022 is that by the middle of Q1 Covid will be more manageable, and inflation will have peaked.  However, there could be a lot of volatility until we get there. We expect interest rates to grind slowly higher throughout the year, influenced by the Fed’s policy change.

On Monday the S&P 500 was down -0.91%, Tuesday -0.75%, Wednesday +1.63%, Thursday -0.87%, and Friday -1.03%.

Next week should be quiet on the news front as Christmas approaches.  There will be some indicators of holiday spending levels as well as reports assessing inflation.  Covid/Omicron is likely to trigger additional market volatility. Be prepared.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors

 

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464