Omicron overshadows Black Friday

Contrary to the frenzy that typically coincides with the Black Friday retail sales in November, the financial markets had no part of it this year, as news of a new covid variant from South Africa emerged.  It didn’t take long for November’s gains to be erased as yields, equities, commodities (especially oil) and currencies were sold on the infamous Friday. Another big story that transpired at the end of November was the reappointment of Jay Powell as Fed Chair for another four-year-term. The initial response from financial markets was to bake in more Fed rate hikes, anticipating three rate hikes in 2022.
 
In Canada, the markets fully priced in 150 basis points of tightening by the Bank of Canada in 2022. To put things into perspective, we would have to look at 1994 to find a time that the Bank hiked that much in a single calendar year.  Along with the Friday sell-off, the Canadian dollar fell more than 1% to around 78 cents ($1.278/US$) and WTI sagged 12% on Friday alone to below $69. Light Crude almost hit $85 US per barrel a week earlier, only to drop to $66 by the end of the month.
 
Our new normal is dealing with reactions to covid headlines, market speculation on interest rates and geo-political issues. There is a lot of uncertainty which causes worry and we understand the psychology that drives decisions when it comes to investing. We are not distracted by these events because we have a process in place. Every week when we review our positions, we make sure our thesis lines up with what’s happening in the world. If it doesn’t line up, we make a change. That’s active management and that’s why you hired us.

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