Major indexes are poised to end the year boosted by the “Santa Claus Rally” effect, as the market shrugs off concerns associated with surging COVID-19 case numbers across the U.S. and the world.
But according to NJ-based financial services firm Hennon & Walsh, the Omicron variant remains among the top uncertainties in the market heading into the new year, regardless of whether investors are currently interpreting it as such.
“The two biggest uncertainties for investors right now clearly are Omicron and what may come next with respect to COVID-19,” CIO Kevin Mahn told Yahoo Finance Live, “and then, of course, what the Federal Reserve may or may not do in 2022.”
The Fed is expected to embark on a rate hike campaign next year, just as new coronavirus infections set records in key regions, which may yet prove a drag on the economy.
The Omicron variant now comprises over 70% of all new COVID-19 cases in the U.S. Just last week, a dramatic sell-off attributed to these surging case numbers was a pointed reminder that a still raging pandemic remains the biggest wild card for 2022’s outlook.
Mahn said that investors should expect three potential rate hikes at 25 basis points beginning in 2022. Despite rising rates, however, he believes investment opportunities still exist in what he described as a “growing but slowing” environment.
“Financials, historically, have performed well in rising-rate environments when economies are expanding,” he explained, adding that Federal Reserve “wouldn’t be raising rates if, in fact, the economy wasn’t continuing to expand.”
The Fed voted unanimously on Dec. 15 to double the pace of the asset purchases taper to $30 billion per month, bringing all asset purchases to an end by March 2022, but warned that “the path of the economy continues to depend on the course of the virus.”
The next FOMC meeting is scheduled for Jan. 25 and 26.
Whether more Omicron-inspired volatility is on the horizon remains up in the air. But SoFi (SOFI) Head of Investment Strategy Liz Young told Yahoo Finance the market serves as a forward-looking barometer, even if bad news moves prices in the immediate term.
“I think this is a perfect time to remind everybody that the market is a leading indicator,” she told Yahoo Finance. “So the market is going to go down, the market is going to bottom before the bad news peaks. We likely haven’t heard all of the bad news yet. We certainly haven’t hit a peak in the Omicron cases.”
