The market volatility that began last Friday with the news of the Omicron variant continued on Tuesday after comments from Federal Reserve Chairman Jerome Powell. Powell signaled in testimony to Congress that the Fed will consider accelerating the pace of tapering bond purchases at its next meeting in December with a view to concluding bond purchases (known as quantitative easing) a “few months sooner” than currently planned, in spite of the emergence of the Omicron variant. In acknowledging the high level of inflation, Powell also added that it was time to retire the term ‘transitory’ to define the spike in prices since it appears likely to persist at an elevated rate for a more extended period of time than originally forecast.

We reiterate our stance on staying the course with long-term investment plans and have the following observations.

Powell’s comments suggest the Fed’s primary focus is now on the risk of more persistent excess inflation, which Omicron might aggravate, and not downside risks to economic activity from the variant. However, Powell qualified his statement by observing that the FOMC would learn more between now and the December Fed meeting including with respect to the variant and its risks to the economy.

Importantly, the Powell-run Fed has proven to be highly data dependent, including heading market stress signals, throughout his tenure. The currently very accommodative monetary policy was in reaction to pandemic-induced financial stresses and we expect normalization of interest rate policy to only occur in unison with further strong economic readings (which created the inflationary pressures) and relatively low financial stress readings. This implies higher interest rates only in response to a healthy economy (that supports profit growth and ultimately stock prices) that is capable of handling higher interest rates.

Disclaimer

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For additional information or questions, please consult with your Financial Advisor.

About the author

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: http://brokercheck.finra.org/