Transcript:
Tom Vaughan:
Hello everybody, welcome to Wednesday. The S&P 500 was down almost 1.2% today. An interesting day, the market was up in the morning, and then started down, and continued down throughout the rest of the afternoon after we heard about the first case of the Omicron variant. And so this was here in the US, it was a breakthrough case for somebody who’s vaccinated, they hadn’t had their third shot, they came back from South Africa on a trip. They had mild symptoms, which is good news. So far, I think the symptoms are the key here, to figure out what’s going to be happening, you know, the best case scenario that I’ve read about a few times is just that this thing moves very easily from person to person, but has very low symptoms. And what that would do is it kind of inoculate a big chunk of the population, and really knock down the virus overall. So we’ll have to wait and see. So the symptoms are the key so far.
The other piece of data we haven’t gotten so far, of course, is how the vaccine works against this particular variant, obviously, though, case that came to us as a breakthrough case. But how do those breakthrough cases work in terms of symptoms? And mainly, what we’re looking at is just kind of the severe cases: does it knock down the severe cases? So, we’ll see what happens here.
Because that’s a huge deal in terms of what type of impact it might have on the economy. If the symptoms are light, and people don’t become as nervous about it, then, you know, things will continue to move along. As far as that goes, you do have this backdrop where the Federal Reserve is trying to, you know, fight inflation, that might not really be there as much as it was, at least some time ago, since this announcement of this new variant; the 10 year Treasury yield has been coming down. And what that traditionally means is that, you know, the market bond market is expecting lower inflation. So you have this environment where, you know, there’s a big chunk of the market that thinks things are going to slow down here with this potentially with this variant. And yet the Federal Reserve, you know, saying that they’re going to try to slow it down even more.
So I’m not so worried about the Federal Reserve. As I said yesterday, I think that they’ll adjust their methodology to see what’s going to happen here. And I think, you know, this is going to be a couple data points we need to see is how effective is the vaccine against this variant? And what are the symptoms for people that are vaccinated or unvaccinated as far as that goes. And so that’s, that’s a big issue that we’re looking at right now for the market.
But I will say, Here’s my key piece, the stock market has been on a real heavy roll, really, since early October, really, really pulling that rubber band always talking about how the market kind of can really stretch itself. And so when we see these types of downturns, you know, like yesterday, and today, part of that is just pretty normal. This is part of that rubber band stretching back down, letting the market get back to more reasonable valuations, often runs too far, one way or the other, and then snaps back. And so as a big piece of I think what’s happening here, as sort of what looks like an overreaction to the virus information is also part of this kind of snapping back into some better average.
That’s not a bad thing. These things keep the market from getting too hot, and getting too carried away, they allow earnings to continue to grow while the price is kind of stabilizing, or coming down a little bit. And then once that kind of gets going, we get these big motions upward, generally stretching too far, and then kind of come down. And that’s that’s the norm for the market, whether it’s up markets that stretch too far and come down a little bit or down markets that stretch too far, and then bounce up a little bit. Those are very, very normal.
You know, always remember that the stock market is a representation of human emotion, and it’s really not a consistent vehicle because of that. But it is consistent in the sense that if you kind of look at it from a standpoint of a representation of human emotion, you get more of an idea of what to do and how to react to it. So these particular environments that we’re in right now are definitely kind of the emotional side of the picture. And we’ll see how this plays out. I think it’s very fascinating. Look forward to seeing what’s going to happen tomorrow. I’ll talk to you then. Thank you