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Markets: 'Feels like a lot of people overreacted' on Black Friday, strategist says

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Heritage Capital President Paul Schatz joins Yahoo Finance Live to assess how logically investors reacted to Black Friday's downturned markets and potential market outlook in relation to the Fed and the Omicron variant.

Video transcript

PAUL SCHATZ: --behavior for at least another week or two.

- So Paul, when you look at all the possible threats out there for a stock market rally heading into 2022, is this new variant at the top of the list, do you think?

PAUL SCHATZ: It's not even on my top 10. So this reminds me of-- in a different way, you know, post-9/11, every time there was trouble with an airplane, with a threat, we immediately thought about 9/11. So again, it's that recency syndrome that so many investors suffer from. Post-financial crisis, same thing-- any time that a bank was talking about a problem, they immediately thought, oh my gosh, are they insolvent?

So this is not a repeat of March 2020. This looks nothing like March of 2020. Yet, it's so recent in our history, people immediately think Omicron is here. Oh my gosh. This is going to be a 30% decline. We're going to go straight down. Nonsense.

People need to forget. You need to equally weight history, not weight it based on how recent it was in your memory. So no, there are a lot of other things we can worry about next year, number one being the Fed, because now that Powell is going to get reappointed, he's not going to have to worry about being dragged through Congress. I think he's going to be much more vigilant about inflation.

And my thesis starting-- I was with you last month. One month ago today, I said, inflation is just beginning to get in the process of peaking. And I firmly believe with high conviction that in the next four months, inflation for this cycle will have peaked precisely when the Fed is going to be doing what they should have done a year ago.

The Fed's the biggest worry of 2022. I think growth's going to slow in 2022. I think you've got-- you know, frankly, I think you could see bonds rally and stocks struggle next year when commodities go down. But we can certainly talk about that another time. But right now, Omicron is not my biggest worry. It's not in my top 10 next year.

- And then does this give the Fed a little bit more cover as far as when it tapers and when it starts to hike rates after we've got this sort of fear of Omicron? And then how closely are they going to, looking ahead, be looking at the jobs numbers that come out later this week?

PAUL SCHATZ: Tapering and raising rates-- so certainly, the taper should have been a year and change ago, right? We got out of a crisis pretty quickly. Shame on Powell on the Fed for succumbing to political pressure. They are going to taper. I do not believe they're going to use this variant as a reason to pull back.

The rate hike thing is a little more fluid. Right now, it looks like second half of next year, but so much data is going to come out between now and then. Omicron will be far in the rearview mirror when the Fed begins to discuss the possibility of remotely raising rates second half of next year. So for Powell again, it's his reappointment and confirmation, but I don't think they are going to go off course.

I think that they went from transitory inflation across the board to [? Gs. ?] Maybe we got it just a tiny bit wrong, and now they're thinking, OK, we've got the runway to taper. The market's priced it in. Let's not upset that applecart and throw in more kinks or chinks in the armor, if you will.

- All right, we're going to have to leave it there. Paul Schatz at Heritage Capital, thanks so much. We appreciate your time today.

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