Dec 2, 2021 4 min read

This week, we saw increased volatility in the stock market.

Black Friday is the traditional start of the Christmas shopping season. This year, it was “black” in the stock market. The Dow was down 905 points – the largest drop in more than a year.

Four days later on Nov. 30, it was down another 652 points. This drop was because of the new COVID-19 variants; a CEO of one of the major vaccine manufactures expressed concern about how the vaccines would perform against it.

Also, the chairman of the FED, in testimony before a U.S. Senate committee, acknowledged that inflation was probably going to be more prevalent than the FED had been projecting. He said they will have to reconsider using the word “transitory.”

We questioned the long-term effect of inflation months ago.

When wages are increasing as fast as today, that will have a lasting effect. Companies will not be able to go back to employees and tell them their wages are going down. People bidding higher prices for houses and paying more for vehicles will not accept a lower value when they sell them.

This week, Dollar Tree announced that many of their prices would be increasing to $1.25 in January. While that is a 25% increase, it is not surprising. Their slogan has been “Everything for $1” for decades. Inflation makes it impossible to offer a selection at the former price.

Gasoline has come down a little over the last week or so, but the cost per gallon is still significantly higher than last year.

President Joe Biden recently reappointed Chairman Jerome Powell to another term at the FED. This means there will probably be less change than if someone from the outside would have been appointed.

Powell indicated that the FED would consider, and probably increase, the tapering that was announced last month. The FED has been buying at least $120 billion per month of U.S. government debt. This pumps excess liquidity into the economy to go along with all of the fiscal stimulus from Congress by way of stimulus checks and large spending bills.

This has likely contributed to high stock market valuations. The next step after tapering will be starting to raise interest rates. How fast this will happen depends on inflation. If inflation continues at 5% to 6%, like right now, rising interest rates might happen much quicker than the market is expecting. This will like increase volatility and possibly begin a bear market.

It is important to remember when interest rates rise, bond values go down. Bonds are considered the safe part of most portfolios. They could be losing value at the same time stock values may be going down.

Growth in the stock market this year has been uneven. Although the overall market is up, there are a number of stocks that have gone down in value. It might be a good time to do some tax harvesting. This is when you sell some of both your winners and losers to reduce your tax bill. It is important to remember if you are going to buy back some stocks, do not violate the wash sale rule. This imposes a 30-day waiting period for some transactions.

Make financial decisions based on real-life facts and understanding that we have been functioning in a financial world that might not continue. Take advantage of end-of-year planning and make sure your investments match your timeline and risk tolerance.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.