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Sound Advice: December 1, 2021

Delta, Mu, Omicron, etc.

Only eight months ago, I wrote about the regularity of market drops and what always follows.  Over the last 40 years, the Standard & Poor’s 500 Index has had average annual interim drops of 14.3%.  More than half of those pullbacks were greater than 10%, but a full recovery and even higher prices came after the dips every time.

Given the stretched valuations that have prevailed for an extended period, the question was never whether there would be a pullback, but what would set it off.  Stretched valuations alone don’t start selloffs and they often persist far longer than one would expect.  In the past, however, the trigger for market hiccups has typically been unusual geopolitical events.

Concern about the pace of economic progress is another trigger, as is what lies ahead for interest rates.  Yet, much of the recent news about business has been encouraging and prospective increases in interest rates will probably be gradual.  Although there are and will be further disruptions due to supply chain constraints, the corporate community continues to operate under favorable conditions.

What spooks the market is a scary word: uncertainty.  When the pandemic began in March, 2020, the immediate reaction was panic.  Infection rates soared, therapies were virtually nonexistent, intensive care units in hospitals became overloaded, and there was no end in sight.

Fast forward one year and the picture brightened considerably.  Vaccines were available, therapies were being developed, infection rates slowed, and there seemed to be a likelihood that the world was not coming to an end. 

What’s more, most people were helping the situation by following sensible rules for social interaction.  The lessons learned over the past 20 months will assist as we move ahead.

So here we are facing another virus variant, which has yet to be sorted out.  Current vaccines may work or need modification.  The same is true for current therapies.  No doubt, it will take time to make the adaptations that will be needed, but they will be made.

Uncertainty brings discomfort, but cooler minds will lead the way to a calmer future.  This, too, shall pass. 

N. Russell Wayne, CFP®

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