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Uncertainty Likely To Continue Until Year End

Published 12/03/2021, 07:03 AM
Updated 09/11/2023, 01:40 PM

As the old saying goes - a week is a long time in politics. A week can seem like a lifetime when it comes to markets, and the last week could be one that many investors will want to forget. Much of the recent focus across all sorts of assets - stocks, commodities, currencies - has been on inflation, and that topic has undoubtedly come back over recent days.

But another primary concern has been the emergence of the latest strain of the coronavirus. There has been something of a tug of war over just how profound an impact the Omicron variant could have. Arguably the jury is still out on this - but given worries that it could have mutations that avoid current vaccines, it seems that some investors took the view that this uncertainty is enough to start taking some risk off the table into year-end.

Last Friday saw the most significant one-day fall for the Dow Jones index this year (perhaps exaggerated due to Thanksgiving half-day trading), and Wednesday's close saw the broader S&P 500 index at its lowest levels since mid-October.

"Big deal," you may think - and it is right to maintain some perspective here - stock markets giving up six weeks' worth of gains hardly merits a market crash. But it is the increased volatility that has fanned the flames of the nervous this week.

Of course, it could all end up being an excellent buying opportunity. Still, with the end of the year approaching, it is perhaps not too surprising that some investors at least are happy to sit on their hands here after what has been a solid performance for stocks in 2021.

It wasn't just stocks that experienced some nervous trading. If you want to see the opinion of the short-term future for the economy, oil could be worth a look. And there has been quite the turnaround here from the seven-year highs hit in October.

Crude oil WTI traded up to almost $85 a barrel back then, and this week, so far, it has gone below $65. That is a sizeable decline by any measure. And once again, what we are seeing is uncertainty partly fueled by the new variant. After a year of steadily rising stocks and commodities, this volatility has come as a wake-up call never to take anything for granted in financial markets.

And finally, inflation. The chairman of the Federal Reserve, Jerome Powell, this week said that perhaps it was time to retire the term "transitory" when it came to inflation. Now, none of us ever admitted we are wrong - and this is perhaps the closest we will get from a central bank seriously underestimating the rising cost of living.

With inflation and the new variant here to stay for perhaps a little longer than a "transitory" period, it looks set to be an exciting finish in financial markets for 2021 - and maybe a pretty different market landscape in 2022.

Disclaimer: This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors, not necessarily Capital.com or any of its affiliates, subsidiaries, officers, or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Past performance is no guarantee of future results.

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