After another great year for stocks, peril lingers

AFTER a remarkably fruitful year in which the stock market shook off rising inflation and coronavirus cases, 2022 began with a decline. It may be the first in a series of ups and downs as Wall Street anticipates moves by the Federal Reserve and copes with the lingering pandemic.

It will be hard for investors to know what to do as the Delta variant gives way to Omicron, and whatever variants evolve next. As for the Fed, the evolution of its policy is perplexing the markets, too. Recent statements and past behaviour by its Chair, Jerome Powell, suggest it will ramp up the effort to fight inflation, then change course if markets become unduly agitated.

"The markets have come to believe that if there's a major correction in the equity market, Powell will help them out," said Komal Sri-Kumar, president of Sri-Kumar Global Strategies. "The result is a see-saw motion in which the market corrects in anticipation of tightening, then the Fed eases and the market goes up."