The S&P 500 index dropped 2.2 percent and 1.9 percent in two of the last three days of November on concerns about a new COVID variant (Omicron), rising inflation, and renewed tension over the federal debt ceiling. In November, the S&P 500 fell 0.8 percent, the yield on the 10-year Treasury Note declined from 1.55 percent to 1.43 percent, and a barrel of West Texas Intermediate oil dropped more than 20 percent to roughly $66.50.
At this point not much is known about the Omicron variant, but we do know that viruses generally mutate, and although they become more transmissible, they generally become less severe. Nevertheless, some countries have already issued travel restrictions. The initial knee-jerk reaction was “here we go again,” however, the Delta variant did not result in a shutdown and it remains to be seen what happens with Omicron.
Of greater concern is whether the Fed is making another mistake. We have been critical of the Fed because both the 2000 and 2008 bear markets in stocks had the Fed’s fingerprints all over them. Moreover, the Fed tends to deny responsibility and accountability, so there seems to be few lessons learned. For example, in 2007, former Federal Reserve Governor Edward Gramlich wrote a book titled Subprime Mortgages: America’s Latest Boom and Bust. A few years later former Fed Chairman Alan Greenspan wrote an article titled “Never Saw it Coming.”