Individual investors have had a decade or more of gains, compliments of a stock market that has gone up with few interruptions. But as we enter a new era of tighter monetary policy, the road ahead may be a bit rockier than most investors expect. As such, it might be time to enlist a little professional help to preserve those profits.

 

There is a saying on Wall Street that just about anyone can make money in a bull market. That may be a bit harsh. I don’t want to denigrate the efforts of so many who work hard at managing their own retirement portfolios. Some work diligently at following the markets and have made it a full-time occupation. Most others "dabble" with the aid of newsletters and columns like this one. That may have worked well up until now, but I fear we are entering a new stage of the market where a weekly column like mine just won’t be enough to protect your investments.

 

I recognize that if you are like me, you hate to spend money on something you can do yourself, especially if you have been making money by buying dips and staying invested. If this bullish trend continues, why would you even consider paying fees to a money manager?  

 

For the same reason you don't fix your own computer, washer/dryer, or put on your own new roof. Notice in each case I used an example where something broke down or malfunctioned. That has not happened yet in the stock market. Afterall, we are only a percentage point or two away from all-time highs. But what would happen if the stock market suffered a 20 percent decline? Well, just buy the dip, you might say, right?

 

What would happen if you were right, but after the sell-off, dip buying worked, just not in the case of U.S. equites? Let's say international securities bounced back, but U.S. equities did not. Are you prepared to navigate changes like this?

 

And do you have the time to do that? Up until recently, your portfolio was probably on auto-drive. A daily check on the markets, maybe a brief read of the occasional research note was sufficient to keep you on the straight and narrow. But the fact is that more than 75 percent of individuals investors, according to Fidelity studies, do not have the time, knowledge or experience to be confident in their investment choices.

 

I will be the first one to tell you that reading my weekly columns is not going to cut it. Sure, I have a good track record in calling the turns in the markets and possible investment choices over the years. But what I don't know are your backgrounds, your investing plans, nor your risk tolerance, tax status, spending behavior, retirement issues, or your estate and long-term care plans. That is why my advice will always remain generic. In down markets you need a lot more than that.

 

Now many investment advisors simply manage money, and don't get involved with financial planning. I believe that is a big mistake. Most investors, regardless of age, should seek an investment advisor that does both. How else can a professional craft an investment portfolio with the right risk profile that considers all your life factors. Many of those details are as important (or even more important) than how much money you win or lose over a day or month within the vagaries of the market.

 

Another important reason to consider a financial advisor is in order to keep your emotions in check. Personally, I expect a serious correction in the stock market in January-February 2022. If so, some investors could lose most of the profits they made in 2021. How much pain can you absorb? Does your present portfolio reflect the proper risk you are willing to take, or has it become more aggressive over time? If you are like most people, you have no idea. But I will bet your risk taking is higher than it should be.

 

History says that individual investors tend to hold on, suffer through the pain of a declining market only to sell at the bottom of a big decline. Don't allow yourself to be one of those casualties. The time to act, reduce the risk in your portfolio, and prepare for this pain trade is now. A professional portfolio manager can help you do that and be there for you when you are convinced the world is coming to an end.

 

The purpose of this column is to scare you into getting off your butt. Most people won't make a move until they absolutely must. Sure, I could give you all those boring, financial arguments that you read (and ignore) all the time. Fear is a great motivator, however. Pick up the phone and set up an appointment now, don't wait until it is too late. If you don't know who to contact, call, or email me. Given my background, plus 40 years of investment experience, I will work with you to determine someone appropriate given your circumstances.  

 

As most investors expected, the Federal Open Market Committee announced the start of their tapering effort but doubled the pace of the monthly taper to $30 billion a month until March 2022 when the effort will conclude. In addition, FOMC members see three, 25-basis-point increases in the Fed Funds interest rate next year, and more in 2023.

 

Faced with the end of a decades-long era of loose monetary policy, historical behavior would indicate interest rates up, equities down. That still seems a good bet despite the market's immediate reaction to the Fed announcement.

 

Some participants may still be scratching their heads after Wednesday's (Dec. 16) Federal Reserve Bank meeting this week. Normally, an announcement that monetary policy has pivoted to tightening and will likely continue over the next several years would send stocks lower. The opposite happened. Stocks went up. The S&P 500 Index jumped more than 1.5 percent, while the NSDAQ climbed 2.28 percent. The dollar declined, the VIX (the fear Index) dropped below 20 and commodities rallied.

 

There may be two reasons why the initial reaction to the announcement was contrary to expectations. During Monday, Tuesday, and most of Wednesday, the stock market dropped continuously with the S&P 500 declining by about 100 points. The tech-heavy NASDAQ did even worse. In my opinion, investors went overboard in discounting the Fed's negative news (which was largely already known by the markets). It was a classic "sell the rumor" market play. Jerome Powell and his band of monetary men failed to deliver anything more negative than what was expected, so the signal flipped to "buy the news."

 

The second explanation might be that despite the Fed's intention to raise interest rates next year, some on Wall Street doubt that will occur, or if it does, at a slower rate than the Fed has telegraphed. Why would that be the case?

 

There is a growing belief among some in the financial markets (including myself) that the first, and possibly second, quarter of 2022 may not be as strong as many expect. A combination of continued supply chain bottlenecks, higher inflation, and a winter surge in the infection rates of the coronavirus mutations (Delta and Omicron) could combine to slow economic growth.

 

If so, the Fed may not be willing to add to a slowdown by raising interest rates. It may also call into question how strong corporate earnings and guidance might be. And even of the Fed did try and raise interest rates with that background, the stock market would swoon. That would make the Fed quickly rethink further hikes in my opinion.

 

You might ask how the Fed's pivot to tightening might impact your investments in the stock market? My initial response is not encouraging. The market's upward response to the FOMC was all about the absence of additional negatives. There was nothing in the statement that was positive for equities. If you have been managing your portfolios on your own, I would advise you to hire good investment adviser — pronto.

 

The market action during the past few weeks is troubling. Professional investors are deleveraging. They are getting out of high-priced stocks with little or no earnings. Underneath the averages, many stocks are getting clobbered. Defensive stocks such as consumer durables, Real Estate Investment Trusts (REITS), telecom, and health care stocks are getting a bid, while all but the top five or six tech stocks (the FANG stocks) are being sold.

 

As I said last week, equity strategists are all over the place in their 2022 predictions. What that tells me is that they don't know what is in store for the markets in 2022. As for me, if I just look out to the end of the year (2021), I see continued volatility. Sure, next week we could see the markets bounce, but I have my doubts that we will see a normal end-of-the year Santa Rally.

 

The VIX still hovers above 20, which means volatility will remain high. Day to day, rotation between sectors seems to be increasing without rhyme or reason. The rally after the Fed announcement on Wednesday was sold down on Thursday with the technology sector erasing all its' gains. The smart money seems to be gravitating towards defensives, or if they are inflation bulls, moving into commodities.

 

I would be especially cautious as we move into the new year. It would come as no surprise to me if we were to see a substantial pullback. One larger than any we have experienced in 2021. It's time to get an investment adviser.

 

Workers in America are rethinking who they are and what they want. For the first time in decades, the stars have aligned to give the labor movement a much-needed lift. Will this prove to be a flash in the pan or something more lasting?

 

The share of American workers who claim union membership has been declining for years. There is a myriad of reasons for this decades-long decline. U.S. legislation and the court system has created enormous challenges to forming unions. The transfer of jobs to low-paying countries overseas has also devastated union membership. Labor membership can also be expensive with high monthly dues. In the past thirty years of declining real wages, most workers were grateful to just keep their jobs.  Paying union dues when they had a family to feed was not a high priority.

 

At the same time, the decline of those willing to obtain skills through education or apprenticeship in the U.S. has contributed to a rise in unskilled, service industry jobs. Unfortunately, these jobs suffer from high turnover and minimum wages, and were not a target market of the existing labor union movement.

 

Everything changed with the arrival of COVID-19. The pandemic ushered in massive unemployment, huge safety risks for employed workers in essential sectors, and a wholesale movement towards work-at-home solutions. It was a tiring time for the American worker. And from the ashes a new attitude towards labor was born.

 

Workers employed in "essential industries" who showed up to keep the country running were no longer taken for granted. Nurses, truck drivers, food industry workers and more became the new American heroes. Local media outlets, politicians, and even the White House honored and featured ordinary laborers, who made extraordinary efforts in our time of crisis.      

 

But the pandemic was also the match that forced many Americans to rethink their relationship to work overall. We are, for example, one of the few nations where health care benefits are dependent on your employment. As health care risks and unemployment skyrocketed simultaneously, holes in our private health insurance became readily apparent.

 

"Life is too short" became more than just a quaint slogan. Many Americans, obsessive belief that "work first, ahead of everything else" as life's pre-eminent goal, might need to be re-examined. For others, long-buried work issues such as safety, benefits, wages, and more rose to the surface. Burnt-out workers simply decided to resign or retire rather than remain at their jobs. Others are taking a more aggressive approach to the workplace.

 

Unionization, for many, has been perceived as a viable instrument for change. In 2020, union membership ticked up to 11 percent; about half that gain came from the public sector. It is early days, but through November 2021, union actions have increased. The Department of Labor reports 13 labor strikes so far this year, but they only include strikes that include 1,000 workers or more. As such, they did not report, for example, a seven-month strike here in Massachusetts of 700 nurses at Saint Vincent Hospital in Worcester. Under the surface, labor experts say that well over 225 strikes is a more accurate number if you include smaller company workforce actions.

 

The nation's attention, however, has been focused on several high-profile union actions. Some big companies like Amazon, Starbucks, John Deere and Kellogg's, have been targets of the labor movement.

 

Amazon, the country's number two employer, fought a massive campaign to defeat union organization in Bessemer, Ala., this year. The vote to organize was defeated — a major blow to unions nationwide. But soon after, the National Labor Relations Board determined that the company improperly pressured warehouse staff not to join the union. That was no surprise to union organizers. It is a part of an ongoing trend dating back to the 1970s where companies have engaged in unfair labor practices that were largely supported by labor laws favoring employers over workers. However, times are changing

 

Thanks to the pandemic-induced change in attitude towards workers, positive union sentiment, for example, is at a generational high in the U.S., with 68 percent of Americans supporting unions, according to new data from a Gallup poll. The Biden administration is also supportive of unions as are many in the progressive wing of the Democrat Party. The PRO Act, currently being debated in the U.S. Senate, for example, would make it easier for employees to unionize and establish tougher penalties for employers who illegally attempt to stop their efforts. It would also allow gig workers and contractors to organize alongside traditional employees.  

 

These trends, together with the present labor shortage, has strengthened the hand of labor unions going forward. Amazon workers are slated to vote again in Alabama. Kellogg's workers, on strike since Oct. 5, 2021, are still holding out for better wages after rejecting a five-year, 3 percent offer from the company. In November 2021, John Deere's 10,100 production and maintenance workers won their strike with management and signed a new six-year agreement.  

 

Only last week, workers in Buffalo, N.Y., a city with a pro-union history, voted to form a union at Starbucks. It was one of three Starbucks locations in the city that held a vote (the second branch ended in a tie, while the last voted to reject unionization). The workers in the winning branch want better wages, benefits, and working conditions.

 

Observers are watching these actions carefully, given that there are 8,000 corporate Starbuck locations across the U.S. It is the first successful attempt to unionize an unskilled labor force in the leisure and hospitality sectors. As such, a better, union-negotiated contract could spur more unionization efforts across the country.  Whether these union efforts end with a bang or a whimper, bringing the American worker's condition to the forefront of the American agenda, is an absolute positive in my book.

 

Despite the recent scare caused by Omicron, the new novel coronavirus mutation, retailers are hoping consumers will continue spending in December 2021. I like that bet.

 

The National Retail Federation (NRF) is expecting a record holiday season totaling a take of between $843 billion and $859 billion in revenues throughout November 2021 and December 2021. That would be a record year for retailers such as Target, Walmart and Amazon.

 

Time is running out, however, given that we have less than three weeks to go until Christmas Day.

 

Remember, too, that the shopper began picking up gifts earlier than normal this year due to fears of continued supply chain shortages. Many consumers, fearing that popular gifts may be out of stock, or subject to shipping delays, were shopping for gifts as early as September 2021.  

 

The most recent data indicates that the total number of shoppers, as well as average spending, fell during the extended Thanksgiving weekend compared with sales results during the last two years. During the five-day Thanksgiving weekend, almost 180 million shoppers descended on the nation's retailers, but that is six million less than in 2020, and 10 million less than in 2019.

 

The average spend-per-customer came to $301.27, compared to $311.75 last year, and $361.90 in 2019.Cyber Monday saw a 1.4 percent decline versus last year. The NRF indicated that the price point of shopping carts rose by almost 14 percent on Cyber Monday (19 percent for the holiday season in general), as consumers bought more higher-priced, big-ticket items. However, some of those gains were the result of a higher rate of inflation.

 

Sky-rocketing prices due to inflation may have deterred some shoppers. Price pressures have also been partially responsible for reducing the number and amounts of discounted items offered by retailers this shopping season. Between now and the end of the year, the average discount on many items will fade to no more than 5-10 percent, according to some experts.

 

The disappointing numbers between Black Friday to Cyber Monday could also be the result of poor timing.  Most shoppers woke up to the news that South African medical experts announced a new and, possibly more virulent, coronavirus mutation on Black Friday morning. I know my own family's mood was impacted by the news, and any shopping intentions were immediately curtailed for the rest of the weekend.

 

Since then, the stock markets had plunged, fearing the worst, but then rebounded.  Recent data seems to support that this new strain, Omicron, is no worse than the present Delta mutation and that existing vaccines should be effective against Omicron. This should bolster the consumer's confidence that the U.S. economy will continue to grow, jobs will remain plentiful, and spending for the holiday season can continue unabated.

 

Retailers will tell you that we are in the "December Lull." It refers to the few weeks between Cyber Monday and leading up to Christmas Eve when consumers sit on their hands, feeling somewhat shopped out. That does not mean the consumer is finished shopping, they are just waiting for their second wind.

 

I am guessing that about 50 percent of holiday shopping is in the bag, but that still leaves half of America's gifts to buy. For me, I'll put my faith in the consumer who wants to celebrate a better world by spending — thanks to the safety provided by vaccinations.

 

Most investors blame the discovery of a new, possibly more virulent mutation of the coronavirus for the decline in stocks this week. No doubt there is some truth to that, but equally as important was the change in monetary policy enunciated by Jerome Powell, the chairman of the Federal Reserve Bank, this week.

 

Readers have seen the S&P 500 Index decline by about 4 percent since the Thanksgiving week. The announcement that a new COVID 19 variant, dubbed Omicron, had been discovered in Africa, surprised the investment world. Friday, Nov. 26, we saw a substantial 2 percent downdraft in the financial markets. The move was exaggerated by the absence of a sizable number of traders who had decided to take a long weekend. Since then, markets have been whipsawed daily based on the latest Omicron headlines.

 

Unfortunately, it will take several weeks before scientists and the medical community can determine the severity of this new threat and if the present regimen of vaccinations are effective against this new mutation.  In the meantime, every strategist, pundit and taxicab driver will throw their two cents into the virus mix, creating even more confusion.

 

Of course, the direct outcome would be that the present vaccines are not effective against Omicron. Global economies would need to shut down once again, and new vaccinations, which would take months to create, would be required to stop the spread of sickness and death.

 

On the positive side, some believe that while Omicron is more contagious, it is not as lethal. In which case, the rapid spread of the mutation would first infect and then inoculate the unvaccinated worldwide, thus creating a sort of herd immunity. I think that somewhere in between lies the truth.

 

While Omicron has become a negative factor, it was not the only change in the financial picture. On Tuesday, Nov. 30, during testimony before the U.S. Senate Banking Committee, Powell did what appeared to be an about face on monetary policy. Until now, the Fed's chief goal was to reduce unemployment at the expense of a higher inflation rate. Powell appeared to take on a new mantle, that of the nation's chief inflation fighter, casting aside his former dovish stance towards continued easing of monetary stimulus.

 

Readers should refer to this week's "The Retired Investor" Thursday column for the reasons why. While investors and consumers will likely be relieved that the Fed's focus is switching to fighting inflation, the policy shift presents some clear and present dangers. The main weapon in the Fed's arsenal in reducing inflation is less monetary stimulus. Powell has already said that the FOMC, in their December 2021 meeting, will be discussing moving up their timetable for reductions in asset purchases.

 

The obvious next move would be to move forward with their plans to raise interest rates. Higher interest rates, after over a decade of rate declines, might create more than a few hiccups in a stock market close to record highs. I suspect that much of the downside this last week in equities was as much about the Fed's plans as it was about Omicron.

 

So where does that leave the markets this month? I suspect we will see more of the same kind of volatile action in the weeks ahead. I am tempted to say that we have already put in the highs of the year, but I don't want to sound like the Grinch Who Stole Christmas quite yet. We could still see a Santa Claus rally, but we face some formidable barriers to more upside.

 

We have the debt ceiling deadline on Dec. 13, 2021, followed a day later by the two-day FOMC meeting. We could see an impasse on the debt ceiling, as well as a decision by the Fed to further reduce their asset purchase program. And Omicron could turn out to be worse than anyone expects.

 

What troubles me about today's market is the elevated level of the VIX, the risk index. It is at the highest level since the COVID-19 crisis of March 2020. Anything above 20 on the VIX indicates a high probability of large swings in prices for stocks and indexes. If I look at price behavior on the S&P 500 Index, I suspect we are in a wide 200-point range of volatility with as much downside risk as 100 points to 4,450 potentially 100 points higher to 4,650. If we drop below this range, prepare for a bad Christmas. On the plus side, I would give the markets an all clear above 4,650.