I think the capital markets are already telling us that the Pandemic will be over within 6 to 12 months. I recently wrote an article about the Consumer Price Index being a lagging indicator that tells us what happened in the past, not what is happening now. However, the stock market indexes typically have been leading momentum indicators for the next 6 to 12 months.
This has happened in the major capital markets in the first 3 weeks of 2022.
The Dow Jones down 6.3%
The S&P 500 down 8%
The NASD down 12%
The yield of the 90-day T-Bill up 280% in yield
The yield on the 10-year T-Note up 10% in yield
The yield on the 30 T-Bond up 10% in yield
Just to note, rising yields mean falling bond prices. This article's falling stock prices are not annualized but the actual decline during the stated time period.
The US economy is coming to a screeching halt. It could be as dangerous as you being on a carnival ride that is going as fast as it can when somebody throws a big rock that stops the ride and you are launched off the ride. Under the Pandemic, the government pumped over $5 trillion into the US economy. Mortgage interest rates were close to historic lows, and housing prices were at historic highs. As we moved into 2021, inflation came roaring back to 40-year highs and will likely go higher. In many sectors, demand for goods and services was greater than the economy's ability to deliver what was needed.
In addition, the government was ill-prepared to handle the new COVID variant, omicron. In October 2021, the Biden Administration had a chance to buy 500 million at-home test kits for the Christmas Holidays season but turned it down. The Biden Administration diverted billions of dollars earmarked for COVID relief. They redirected funds, including $850 million that Congress originally allocated to rebuild the nation's Strategic National Stockpile, the emergency medical reserve strained by the Covid-19 response. According to three people with knowledge of the matter, another $850 million was taken from a pot intended to help expand coronavirus testing. This $1.7 billion went to help illegals coming across the border. The Biden Administration got behind on the Omicron outbreak and tried to close the barn door after all the horses were already out.
If investors don't see a continuing opportunity for growth in a company's business, they will begin to sell out rapidly. Going back to the January 3 to date timeframe, some of the major players that benefited from the Pandemic, like Amazon, Netflix, Pfizer, and Moderna, just to name a few, have seen significant declines in their share prices. Moderna, one of the two principal vaccine makers, has been under selling pressure that has caused the share price to drop 38% since December 30. Over the same timeframe, Netflix's share price fell 35%. Let me point out again that these declines are for the first three weeks of 2022 and not annualized.
The Federal Reserve Board Open-market Committee will have its first meeting of 2022 during the last week of January. It is anticipated that the Federal Reserve will make announcements of its intentions to raise interest rates perhaps as many as three times in 2022, or more if inflation remains stubborn. The Fed will stop the purchase of certain debt obligations, further reducing the money in circulation.
The long-standing presidential advice is to get all the bad stuff out before the mid-term election and then use the last two years to improve the economy and get re-elected. I'm concerned that the momentum against President Biden is too strong and may get even stronger. If Russia and or China attack their neighbors, the President's favorability rating may fall to the high 20's. He may be so far down he can't push the momentum back towards neutral.
Currently, the President has much of the mainstream media supporting him as well as business leaders. But if things get much worse, both may well turn against him and perhaps the democratic party. With the decision on the vaccine mandates by the Supreme Court, companies are walking away from the mandates. Look for more companies to abandon the President on this issue.
America may be tested as never before, and the biggest threat to our country is the possibility of a depression caused by people abandoning the capital markets. For a very short time, millions of people have made billions of dollars in the markets, and that time may be coming to an end. If the market goes no lower than it is today, January account statements will shock millions of investors. A significant market decline will put even more downward pressure on Joe’s popularly rating.