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The January selloff continued in earnest this week. As of 9 am today, the S&P 500 is down 1.8% for the week, the Nasdaq 100 is down 3.6%, and the Russell 2000 is down 3.9%. This brings the losses month-to-date to 9.8%, 14.9%, and 15% respectively. Pretty clearly, the stock market is voicing its dissatisfaction with a change in Federal Reserve Policy.

Just two weeks into the year and the market is already grappling with the prospect and the impact of Federal Reserve policy change. Largely ignored during the final quarter of 2021, the Fed has clearly indicated to the market that it will begin tapering its asset purchases and raising interest rates this year. Wednesday, we got another glimpse of the reasons why they are having to change course.

Looking back on the year that has been we can definitely say it has been a good year for headline stock indices. The S&P 500 gained 29%. The Dow Jones Industrial Average added 20.1%. The Nasdaq 100 gained 28%. The past year’s outstanding returns only adds to the amazing, compounded returns achieved by each of these indices over the past 5 year. Since 2017 the Nasdaq has gained over 250%, the Dow 100.4%, and the S&P 500 133%.

The S&P 500 is two weeks away from finishing off an impressive year. After logging an 18+% return in 2020--recovering from a disastrous start to rally 65% from the March 2020 lows--the blue-chip index is set to add another 20+% return again in 2021. You can’t argue that the most watched and tracked index in the world is generating wonderful returns for investors.

This week we witnessed the return of volatility. Twice this week overnight S&P 500 moves eclipsed 1%. Daily ranges for the S&P, the difference between the lows and the highs of the day, averaged 2%. At writing, the S&P 500 is down over 1.5% for the week. Volatility is even more pronounced in Tech shares and small-cap companies. The Russell 2000, the small-cap index, is down over 12% from its highs on November 8^th.

The shortened holiday week got a shock this morning when stock markets around the world dropped precipitously on news that a new strain of the coronavirus is emerging in South Africa. This new strain, with much still unknown about it, seems more impervious to vaccines currently on the market. The immediate reaction in financial markets is to revert back to the playbook from early spring 2020.

The October CPI was released this week and shocked the market with a hotter than expected reading of 6.2% year over year inflation. The Fed has, up until now, believed that hotter inflation was temporary—transitory in their language. They are beginning to reassess that belief now. At the beginning of the pandemic the Fed changed its inflation target from 2% to what I would call 2%-ish.

Stock indices closed the month of October having recovered all of the ground they ceded in September. For the month, the S&P 500 gained over 6.75%, the Nasdaq 100 added 7.47%, and the Russell 2000 gained just under 4%. Big tech names were the biggest winners this month. Tesla gained a whopping 41.7%, Nvidia gained over 23% and Microsoft added 17.12%.

This week the market seems to have shaken off the September slump. After struggling to put together a convincing rally during the last 18 trading sessions, the S&P 500 appears to be breaking out above previous resistance levels. If the market holds its current levels as of 12:30 pm very little stands in the way of it regaining the highs set in early September.

Today marked the beginning of not just a new month but a new quarter for financial markets. September, traditionally the worst month for the stock market, delivered returns inline with tradition. For the month the S&P was down over 4.9%, the Nasdaq 100 was down 5.6%, and the small-cap Russell 2000 was down 2.9%. September also brought the 3^rd quarter to a close.