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The Screws Tighten
Plus November Market Report

John Gorlow | Dec 20, 2021

Investors had plenty to stew over in November. Fed Chair Jerome Powell signaled he would tighten the spigot of easy money pouring into the economy. As for “transitory” inflation, maybe it’s not so transitory after all. Meanwhile, the virus first known as Covid-19 just keeps doing what viruses do, mutating in cunning new ways. Suddenly it feels as though we’re about to step backwards after nearly two years of progress. Here we consider the factors behind rising bearish sentiment and offer advice on how to stay calm during turbulent times.

Though widely expected, the Fed’s late-November announcement that the Central Bank would reduce its pace of asset purchases sooner than expected was a wake-up call to Wall Street. November returns for the S&P 500 fell to negative -0.69%. Despite that dip, the benchmark index notched a healthy 23% YTD return through the end of the month.

The prospect of a tighter money supply and higher interest rates as early as next spring put pressure on short-term bonds. Longer-term bonds, which were dumped by investors early in 2021 in anticipation of an economic rebound, rallied. By early December, the gap between the 2-year and 10-year government bonds had narrowed to just 82 basis points. This key indicator of the yield curve suggests growing concerns about the trajectory of the economy.

Reasons for concern have multiplied. Rising energy costs, a crisis in China’s property sector, the fast-spreading Omicron variant, continuing labor shortages, and exhausted health care workers all add strain to an economy that was already chugging uphill.

Recent market volatility signals that investors are unsettled. Those accustomed to buying on dips may be less confident as the Federal Reserve withdraws support for asset prices. Higher inflation will limit the ability of Central Banks around the world to inject money into the economy, thereby putting the brakes on growth. The more this reality sinks in, the greater the risk to financial markets. If monetary-policy changes lead to increased volatility in markets, or should the uncertainties of Omicron begin to dramatically alter the economic outlook, we could find ourselves in a situation where bearish market investors are finally vindicated.

How we deal with uncertainty is the central challenge investors face, says DFA’s David Booth. “We are defined by the choices we make but we never have all the information we want.”

Booth has some timeless advice for dealing with this uncertainty: “It pays to have a philosophy to guide our choices, in investing and in life,” he says. Markets are forward-looking, and “betting against them is exhausting.” The market always wants buyers and sellers to make a deal, Booth reminds us, and transactions only happen if people agree on a price that seems fair to both sides. But over time, investors are rewarded for the risks they take and for their belief in the long-term power of markets.

Of course there is always risk. “In 2022, new challenges await. New businesses will grow. Old ones will adapt. Some will fail, while others flourish. Rather than guess what will happen to whom and when, I choose a different path. I invest in the market,” Booth says. This makes intuitive sense, because if stocks didn’t have a positive expected return, no one would invest in them.

Booth suggests that embracing this philosophy can eliminate stress and worry. “I wake up every morning believing the market will go up a little but prepared for if it drops. And you should too. Markets will go up and down, but you should expect them to be positive, and that is what history has also shown. If you can hold this in your heart, you can be optimistic and resilient, you can manage the central challenge of human existence [that is, uncertainty]. It’s hard to do. But it’s worth it.”

This doesn’t mean you shouldn’t periodically review your asset allocation and adjust as needed for your time horizon, changed life circumstances, or risk tolerance. I am here to help with that and any other questions you may have. But my deepest wish is that you, and all our Cardiff Park clients, put worry aside and celebrate the holidays as safely as possible with loved ones. As the past two years have taught us, there’s no telling what tomorrow will bring.

Do you have questions or concerns? Contact me. I’m here to help.


John Gorlow
Cardiff Park Advisors
888.332.2238 Toll Free
760.635.7526 Direct
760.271.6311 Cell
760.284.5550 Fax


Cardiff Park Advisors
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Carlsbad, CA 92011
Phone (760) 635-7526
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