The S&P 500
In general, this is the preferred outcome for most market participants as Powell had been pretty market-friendly and done a good job navigating the challenging, last 4 years. Additionally, another nominee would likely take a heavier hand in financial regulation.
However, since last Monday, the S&P 500 has been mired in a brutal sell-off that has continued this week. This is despite the market hitting oversold levels by many technical measures.
A major factor in the selloff has been the omicron variant which some are fearing could evade antibodies from existing vaccines and could be more contagious than previous variants. This is coming amid a backdrop of rising coronavirus case counts due to increased gatherings and the virus becoming more contagious in the winter months.
Another bearish development for the markets is inflation, and the Fed's reaction to it which is leading it to taper asset purchases and some are now expecting rate hikes next year. This would represent a much faster pace than a couple of months ago.
As a result, the S&P 500 is now down more than 5% with deeper pullbacks in the Russell 2000
Despite continued threats to the recovery and the threat of a tighter Fed, the dip should continue to be bought especially given the strong trend in earnings growth. Earnings growth has continued despite many spikes in coronavirus cases during times when there were less effective treatments and vaccines. Further, the Fed has room to slow down on its easing, and forward-looking inflation indicators are already starting to tamp down as indicated by industrial commodities and energy prices.
