Yesterday, I got two emails requesting a response to the current market pullback. I received another couple of emails referring to a prediction (by a very well-known investor) that the stock market was now inevitably poised for a 50 percent decline. Clearly, the anxiety level is high, which makes sense given the multitude of worries and things that could go wrong. We have the Omicron wave, inflation, interest rates, a potential war in Ukraine, and on and on. Is this the end of days—again?

Now that we’re two years into the pandemic, analysts have a lot more context than we did at the start. We have seen multiple waves of the virus, have watched the economy react in real time, and have a sense of what the policy responses are likely to be. As such, we could look back on history for some guidance as to what was likely to happen with the winter Delta wave—and that guidance by and large worked.

The panic of the day is the news about interest rates. The headlines state (correctly) that rates have moved up sharply in recent days. They state (correctly) that stocks have pulled back, noting this fact is due to that increase (which is possibly but not necessarily true). And they state (incorrectly, I believe) that higher rates are going to derail the economy and the markets, in that order.

We are just starting earnings season, when companies will be reporting how much money they made in the fourth quarter of last year. This is always an important time, as stock values depend crucially on how much money companies make. But this season will be especially important.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

This morning’s jobs report came out, and we have all seen the data. Job growth is down, but the unemployment rate is also down. Hiring is weak, but more people have jobs. This makes perfect sense, not. What’s going on here?

After yesterday's monthly looking back/looking ahead post, I had a request to do the same thing for 2021 and 2022. While I haven’t taken this approach in the past, it seemed like a good idea to bring this format to the 2022 outlook in the context of 2021. So, let’s take a closer look.

December was a solid month for both the economy and the markets but a difficult month for medical news. The Omicron wave of the COVID-19 virus drove new case counts to all-time highs at year-end. Job growth kept improving, however, and consumer confidence and spending also continued to grow. Business confidence and investment remained strong, and the markets reacted to the positive news. The economic news continued to be strong through year-end, although we should note it was based on backward-looking data. The outlook for January is more mixed. The Omicron wave is likely to start showing up in the economic data. It’s quite possible it will also influence the markets.

The year closed on a strong note, with the Dow and S&P showing gains. The Nasdaq struggled a bit, but it ended December in the green. On the medical front, the omicron variant drove COVID cases to new highs. Still, the economic data kept getting better. Consumer confidence numbers bounced back, and consumer spending kept growing. Further, business confidence and investment remain very high.