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2022 Lawton, Oklahoma Chautauqua June 21 - 25

Financial markets continue to climb despite COVID surge

STEVE INSKEEP, HOST:

Why have financial markets continued climbing this month? It is certainly not from an improving pandemic. Case numbers were growing worse even before the omicron variant began exploding and shutting things down. NPR's David Gura covers the financial markets.

Hey there, David.

DAVID GURA, BYLINE: Hey, Steve.

INSKEEP: What do investors see that we don't?

GURA: Well, the sense on Wall Street is that even though this variant is spreading quickly and widely, it is not as bad as investors first feared. You know, a couple of weeks ago, there was this sharp sell-off in stocks. Wall Street was worried about omicron itself, but also about the response - if there would be more lockdowns or cancellations or restrictions on travel. And then things turned around, and markets regained the ground they lost because this variant is less severe and because of President Biden's announcement. His administration is doubling down on testing.

Investors also seem more confident because they've been through this before. Of course, there have been other COVID-19 variants, and the effect each version has had on the economy has been less and less dramatic. Sam Stovall is the chief investment strategist at CFRA. And he says to think of COVID's effect on the economy and markets like a ping-pong ball bouncing on a table. The first bounce represents the discovery of the virus in 2020, and that's the highest.

SAM STOVALL: The second bounce is a little less high. That was the delta variant. The third bounce is even less than that with omicron. So, you know, I think that it's going to sort of bounce itself out.

GURA: The market, as Stovall sees it, will not react as much to incremental developments related to the virus. He also says there is a general aversion to more lockdowns, more shutdowns, and that people around the world, Steve, are going to do their darndest, as he puts it, to do what they want to do.

INSKEEP: Of course, some stocks have done better than others, which tells you something about the way the economy may be headed. What do you learn there?

GURA: Yeah. Of course, tech has been flying high for decades, and many of the familiar names did really well this year - Alphabet, Google's parent company, up around 60% this year, Apple is up around 35%. 2021 was also good for energy. Remember that oil prices doubled earlier this year, which benefited oil companies. Devon Energy is one of them. It's an oil and gas exploration company. It's up around 170%. You know, another stock that soared was Moderna, the pharmaceutical company behind one of the most widely used COVID-19 vaccines. That stock, Steve, has more than doubled this year.

INSKEEP: David, it also seems to me that the reality of the market going up and up is different than the political dialogue in this country, which is often focused a lot on anxiety and what could go wrong.

GURA: You know, that's true. And there is a lot of anxiety about inflation, and it is a threat to this bull market that we've seen. Prices have surged since the economy started to reopen, and the Federal Reserve has made this its top priority. Now, the way the central bank is going to fight inflation is by raising interest rates. It said it could do that as many as three times in the new year. That's going to have economic consequences. Higher interest rates, of course, mean it's going to be more expensive for companies to borrow and for consumers to borrow as well. That's going to affect the markets.

On top of that, the Fed has been propping up markets and the economy during the pandemic by buying tens of billions of dollars' worth of bonds and securities. It's scaling that back faster than expected. You know, Sam Stovall at CFRA says to prepare for more volatility in 2022, Steve. He looks to history as a guide here. Stovall says it's always volatile going into midterm elections. They add more uncertainty. But after the elections, once that uncertainty is removed, markets have tended to perform very, very well.

INSKEEP: NPR's David Gura, always a pleasure. Thanks.

GURA: Thank you, Steve. Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.