Lessons from Last week’s Market Sell-off

The S&P 500 pulled back in what was a very volatile week, as investors attempted to price in the potential impact of the Omicron COVID variant and commentary from Federal Reserve Chair Jerome Powell that “the risk of higher inflation has increased.” As a result of this updated view, Powell added that the Fed may consider speeding up the pace of its bond purchase tapering plans.

While all major averages finished the week in the red, the Nasdaq was the hardest hit as Powell comments resulted in expectations for higher longer-term interest rates over time and therefore a contraction in the multiples investors are willing to pay for longer duration stocks (think those that trade on a price-to-sales basis with actual earnings only expected to materialize far into the future).