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Volatility (noun): vol·a·til·i·ty | \ ˌvä-lə-ˈti-lə-tē\ the quality or state of being volatile: such as a tendency to change quickly and unpredictably.
There is probably no better word to describe the markets so far in 2022. This can best be illustrated by the market movements in the Dow Jones Industrial Average.
Over 200 years ago Thomas Paine wrote a series of articles known as the American Crisis which were a call to arms for the revolutionary fight against England. While we are fortunate in the United States to be free of conflict, the same cannot be said for Ukraine. As we have witnessed the tragedy and loss of life far away from us it would be imprudent to believe that these events will not wash upon our shores in one form or another.
After several months of a calm and steady rebound in the economy and the markets, volatility has returned.The threat of inflation being less transitory and the potential impact of the newest Covid strain have become the focus for the markets and investors. Inflation was the leading topic Chairman Powell shared at his Senate testimony in late November. The result is that the Fed will be discussing the potential for accelerated tapering, which then could lead to earlier rate hikes. The argument is that stocks have benefited from the liquidity provided by the Fed, which will now be taken away. Is the punch bowl finally going to be taken away?
Three quarters down and one to go. Seems just like yesterday that we were planning for what 2021 was going to look like. We now have a fairly good idea, but unknowns persist as we prepare for year-end planning and look forward to 2022. Over the last several weeks we have seen elevated volatility as the markets and investors try to assess the impacts of inflation, uncertainty over additional fiscal stimulus, timing of the Federal Reserve tapering of asset purchases, and ongoing disruptions in the supply chain. Does the market look to these as a reason to sell off or do investors continue to buy on the dip and continue to climb the “Wall of Worry?”
Well the first half of the year has flown by!!! And as the United States and the world have begun to re-open it has been positive on many levels. The economy is showing many signs that this recovery is well underway. Manufacturing has expanded five of the last six months according to the Institute for Supply Management (ISM). Merger activity has been robust, setting an all-time record for the most recent period. According to Refinitiv, there have been $2.4 trillion of merger and acquisition deals announced with the U.S. accounting for more than half of that number. And late in the quarter, the Federal Reserve announced that 27 of the largest financial institutions in the U.S. passed their most recent stress tests. This may allow them to both hike dividends and increase stock buybacks.
