Published January 7, 2022
In spite of rising numbers of virus cases and threats of interest rate increases fueled by inflation, the market has powered forward. For the first time in five years, the S&P 500 outperformed the Nasdaq. The S&P in 2021 posted a 26.89 percent gain.
Still, the virus has been disruptive in various sectors of the economy. Especially hard hit were travel, leisure and entertainment. Technology companies benefited, as businesses sought to operate more efficiently.
The world appears to be having difficulty vanquishing the COVID-19 viruses, and as soon as we get an upper hand, a new strain crops up. Perhaps that is to be the way of the future. A knockout blow appears to be elusive.
The mutating virus also is causing problems for logistics and planning, and thus cost increases. Prices for many things are going up. For a long time, the Federal Reserve considered those price increases as transitory, but the board eventually capitulated and decided to raise interest rates to counter inflationary pressures. The market does not like inflation, but it doesn’t like higher interest rates either.
The Federal Reserve previously raised interest rates late in 2018, in the waning days of the longest-lasting economic expansion in U.S. history. It didn’t take long for the Fed to rethink its increases, and it was forced to roll back the benchmark rate all the way to zero, as the economy went into a shocking tailspin. So, are we to see a repeat of the prior experience? Some people think the Fed can tighten things multiple times before the economy suffers. So far, the markets have been holding up. The coming rate increase has been well […]