As we are wrapping up this holiday weekend and looking ahead to the markets this week, it's worth noting we may be in for a bumpy (sleigh) ride to end the year.
In case you missed it catching some deals Black Friday shopping (do people even do that anymore? Idk) the market was down 2.5% percent on Friday due to concerns over a new Covid variant, "Omicron".
The day traders were playing the hits while the market was slipping too, as the airlines sold off and the "stay at home stocks" like Zoom and Peleton rallied. The VIX, which measures market sentiment for volatility rose 50% in a single day, further adding to the narrative that we may been in for some market swings in the coming weeks.
I don't know how much we will be talking about "Omicron" for the remainder of the year. We could be talking about it for 2 weeks or 10 months. Who knows. If anyone tells you they know, keep scrolling. If we have learned anything from the events of the last two years, it's to expect the unexpected. The absolute best thing we can do is make a plan that fits our own personal set of circumstances, time horizon, and risk tolerance, and let the chips fall where they may.
In the last two years there have been record amounts of new investors coming into the market. The emergence of Gen Z and Millennial investors grabbed headlines in the beginning of this year as the "Meme Stock Mania" went into full swing. And while many of the HODLERS of GameStop and AMC have not yet reached the moon, there has been a galactic shift in the psychology of the retail investor.
Talking about your stock picks is not a new conversation starter. Since the early days of the NYSE, there has been discussion and speculation about the markets from barstools to barbershops across America. However as these conversations left the barrooms and went into chatrooms, the game was changed. We began to have access to more information, gurus, hot tips, stock picks, viral videos, StokToks, and financial advice than we could handle. The crazier the advice, the louder the volume gets clicked up on the side of your phone. And while the volume was getting raised on GME price targets going to the moon, the tried and true view of creating a financial plan based on your own personal set of circumstances, time horizon, and risk tolerance went quietly into the frosty air.
As I see volatility return to the markets again, I wonder if this new crop of investors has had any time to reflect on these important aspects to their financial plan. Have the Robinhood investors opened a Roth IRA? Are they diversifying their portfolio? Likely not. It just doesn't feel like the madness of the markets these past 2 years is fully out of their system. But in time, I believe many will take these experiences and look back on them as valuable learning lessons, which will ultimately lead them to building a financial plan that takes into account... you guessed it, their personal set of circumstances, time horizon, and risk tolerance.
I believe that as we close out the year there will be flashes of the madness we saw earlier this year. As more news comes out around Omicron, good or bad, we will see the speculation run wild shortly thereafter. My guess (and remember, my guess is as good as the next guys) is that each 2-3% pull back will get bought up rather quickly, as I still believe there is so much cash and liquidity in the system, there is no other choice but to buy every dip as it comes in.
One other corner of the financial landscape to watch-out for as we close up shop on 2021 will be the crypto markets. I noticed as the market came crashing down on Friday, so did crypto. I believe that much of the gains that have come within crypto are due to liquidity coming in from the US stock market. As investors have seen another year of tremendous gains in the market, they have pulled money out of stocks and into BTC, ETH, SOL among others. It seems as though crypto has lost its advantage of being a true diversification hedge against the stock market, since it is becoming more clearly correlated with each swing that comes our way.
Only time will tell how this year will close in the greater markets. In the meantime, I'll grab myself a glass of eggnog, and fire up some Home Alone 2 on Disney+ by the fireplace. As much as the volatility and the meme stocks are fun to watch, they don't fit into my financial plan. I have considered my personal set of circumstances, my time horizon, and my risk tolerance, and have made a plan to buy my regular diversified mutual funds, and let time and compounding interest work its magic.
Thanks for reading, and be sure to follow me on social media!