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The holiday-shortened week ended with an extra helping of market volatility. News of a new COVID-19 strain (Omicron variant) overseas sparked worries over the potential for renewed lockdowns. Stocks suffered their largest daily decline in two months. Friday, Broadway lost a legend in Stephen Sondheim. I have broken down this week’s news using some of his more memorable songs and lyrics.

Everybody Says Don’t

— Anyone Can Whistle

Investors said don’t to stocks.  U.S. stock market volatility surged 54% on Friday to its highest level in nine months. This time a ripple, next time a wave?  Stocks are still the best place to be invested with longer term assets. Thin holiday trading volume probably exacerbated Friday’s reaction. It is however a reminder that despite the recent rally and still-favorable fundamental outlook, pandemic and policy uncertainties still pose credible risks to the market’s tranquility. The stock market has historically done well after Thanksgiving. Since 1950, the S&P 500 has risen by an average of 1.5% in December, logging a post-holiday gain more than 80% of the time (often referred to as a Santa Claus rally). Furthermore, when it came into Thanksgiving with a year-to-date gain of 20% or more (19 times since 1950, including this year) the average return in the following year was more than 18%. Don’t expect 2022’s gains to be that high, but also don’t jump to the conclusion that this is the start of a bear market. Strong years don’t have to be followed by disappointing ones.

I Know Things Now

— Into the Woods

President Biden hopes that Federal Reserve Chair Jerome Powell knows many valuable things.  He renominated the Chair to serve a second four-year term as head of the nation’s central bank.  The move lifted expectations of policy stability as the Fed seeks to contain rising inflation. The nomination is widely expected to be approved by the Senate and will keep Powell’s at the helm until February 2026.

Send In The Clowns

— A Little Night Music

Isn’t it rich, politicians are losing their timing this late in the year. Congressional leaders pushed back a vote on the $768 billion defense policy bill. Narrowing the window for leaders of the Senate and House Armed Services Committees to iron out a compromise and send it to President Biden’s desk before the end of the year. The roadblock is just the latest delay for the must-pass National Defense Authorization Act, which had already languished for months without action despite complaints from both Democrats and Republicans.

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