Week in Review: December 3, 2021

Markets ended the week lower as Omicron-induced volatility reigned. With the exception of Friday, the S&P 500 rose or fell by more than 1.0% each day of the week. Despite the significant volatility, the S&P 500 ended the week just 3.5% below its most recent record high set in mid-November. Investor demand for safe haven assets pushed the 10-Year Treasury yield down to 1.36%, a full 0.30% below where it stood just two days before Thanksgiving.

For many investors, the recent volatility has no doubt felt particularly jarring given the overall level of fatigue related to coronavirus and the growing hopes that the worst of the pandemic had passed. While that may still prove to be the case, Omicron is currently challenging that narrative. Additionally the general lack of volatility of late, in particular the lack of a 10% or greater pullback, which historically occurs at least annually, had likely lulled investors into a false sense of security.

Testifying before the Senate Banking Committee on Tuesday, Federal Reserve Chair Jerome Powell caused a bit of a stir when he indicated that the Fed should drop its use of the word “transitory” when describing inflation. Further, Powell stated that it may be “appropriate” to “consider wrapping up the taper of our asset purchases…a few months sooner.” Overall, Powell’s comments suggested that the Fed is growing increasingly wary of current inflation and does not want to be slow to react, something of which it has been historically accused.