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Tuesday, December 21, 2021
"Omi-whatever" sure didn't last long.
A couple of weeks ago, Bloomberg's catchy headline and pull quote appeared to sum up a market that had decided to move beyond the latest COVID-19 variant.
That sentiment figured prominently in a piece written on December 10 by yours truly, in which I detailed the manifold ways in which a general public - weary of the pandemic - had begun to calibrate their risks of contracting the virus against a desire to move about freely.
Judging by moviegoers that turned out in droves to see Marvel's latest cinematic opus, running the risk that "Spider-Man" could become a super-spreader event, the impulse for most citizens to live with the virus, and mitigate its risks as best as they can, is still fundamentally intact.
Yet fast forward a couple of weeks, and it's clear that Omicron is making its presence felt in a big way, as swaths of the country brace for a wave that's already engulfing New York. The resurgent jitters walloped stocks on Monday, and amplified worries that the apparent demise of President Joe Biden's signature domestic initiative may be a drag on 2022 growth.
It's not even Jan. 1, yet the mutation is already clouding the outlook for next year.
While the market's bull trend is still intact, the short-term damage has been considerable. Over at Zor Capital, Yahoo Finance contributor Joe Fahmy warned that "the main reasons to be bullish since the April 2020 low have changed over the past two weeks and investors should be defensive until market conditions improve," i.e. cutting losses and holding cash until things settle down.
It should be noted, as frequently as possible, that surging virus infections have less to do with investor fears and more to do with policy reactions driven by a fearful public and the demand to "do something," as it's often said.
"...We know full well that much of the economic impact will depend more on the reaction to Omicron in terms of government shutdowns and the change in human behavior in response," veteran Wall Street watcher Peter Boockvar at Bleakley Advisory Group wrote on Monday (The Morning Brief made this exact argument after the post-Thanksgiving sell-off, when Omicron first surfaced as a market driver).
The ebb and flow of new infections, and whether they lead to a surge in deaths and hospitalizations, is likely to dictate how tight restrictions will need to be.
As COVID-19 moves from pandemic to endemic, "government responses will again be primarily focused on avoiding stress in the health system and encouraging vaccination," according to Elisabeth Waelbroeck Rocha, chief international economist, IHS Markit.
"While general lockdowns will be avoided, service activities will remain constrained until effective and affordable cures become available and make further restrictions unnecessary," Rocha added.
That puts industries like travel, leisure and restaurants squarely in the crosshairs. Those sectors rely heavily on people assembling in large numbers - especially around the holidays - and spending freely.
As it happens, there's already evidence suggesting a voluntary pullback from COVID-wary consumers. Citing proprietary credit card data, JPMorgan Chase economists estimate that "consumer spending has weakened noticeably in recent weeks relative to past years," an impact that began just before Thanksgiving.
"This recent weakening could reflect new concerns about the highly transmissible Omicron variant or increases in COVID cases more generally, which have in the past weighed on consumer spending," which has also revealed itself in travel categories, the largest U.S. bank said.
"While the holiday season is not yet over and though the card data are an imprecise gauge of total consumer spending nationwide, the data in hand suggest December is likely to be a weak month for consumer spending relative to seasonal norms," analysts said.
One silver lining is the price of oil (CL=F), which has tumbled into bear market territory as Germany, France and Britain have already moved to impose new restrictions.
"Even if Omicron turns out to cause less serious illness than previous variants, its much higher contagiousness will result in a large number of people getting sick and missing work, likely causing large-scale supply chain disruptions and labor outages and crimping European oil demand in the first weeks of 2022," according to a Eurasia Group analysis.
"International passenger aviation may also once again grind to a halt," Eurasia wrote.
By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek
Economy
8:30 a.m. ET: Current Account Balance, Q3 (-$205 billion expected, -$190.3 billion in Q2)
Earnings
Pre-market
6:30 a.m. ET: Apogee Enterprises (APOG) is expected to report adjusted earnings of $0.54 per share on revenue of $317.7 million
7:00 a.m. ET: General Mills Inc (GIS) is expected to report adjusted earnings of $1.05 per share on revenue of $4.8 billion
7:00 a.m. ET: Rite Aid Corp (RAD) is expected to report adjusted losses of $0.10 per share on revenue of $6.4 billion
Post-market
5:05 p.m. ET: BlackBerry Limited (BB) is expected to report adjusted losses of -$0.07 per share on revenue of $176.8 million
Politics
2:30 p.m. ET: President Biden will discuss the current state of COVID-19 in the U.S.
European stock markets rebound after sharp sell-off [Yahoo Finance UK]
As Omicron surges, Biden to expand testing and warn unvaccinated [Reuters]
U.S. EPA finalizes tougher new vehicle emissions requirements [Reuters]
Moderna could be ready to develop Omicron booster in weeks: CEO [Reuters]
Nike posts $11.36 billion in Q2 earnings, beats estimates amid COVID-era supply strains [Yahoo Finance]
Tesla is at risk of losing its market dominance: analyst
Hedge fund veteran cites 'quite good' news for the S&P 500
'Buy now, pay later' more 'consumer-friendly' than traditional credit cards: BofA
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