After an ugly selloff and a sizable bounce, market players are assessing what will come next. There still is much uncertainty about the Omicron variant, which is spreading rapidly in South Africa. It appears that the variant spreads faster, but the severity is still a major question.
There is likely to be a sharp increase in the number of cases reported around the world, but the key questions of how it impacts hospitalization and deaths won't be known for a while. So far, most reports have been of mild cases, but that may be a function of early reporting.
While market participants await further clarity on the Covid issue, they will need to deal with the monthly jobs reports. It is anticipated that there will be growth of about 550,000 jobs and will have an impact on Jerome Powell's recent hawkish comments. There is now the added complexity of the impact of Omicron on employment and economic growth, so the numbers may not be as important as they were previously.
In addition to the issues of Omicron and employment, the market is dealing with some of the most severe corrective action since the Covid selloff in February 2020. As I've discussed numerous times, there is a full-fledged bear market in many areas of the market that the indices are not reflecting. Growth stocks have been pounded, and this morning there is another painful illustration in the form of DocuSign (DOCU) , which demonstrates what can happen when growth stocks with very aggressive valuations lower their growth projections.
The market is now littered with broken charts, and the question is whether they are ready to find support and recover some by the end of the year. The bounce yesterday was a good start, but it will take time for charts to develop and market participants to regain confidence.
The biggest issue right now is the macro uncertainty created by Omicron, but next week we will know more, and that issue can be more fully discounted. The added complexity is that we not only need to know more about the severity of Omicron but to what degree it will cause various governments to impose restrictions that slow the economy.
It is a mess right now, and it is a good time to stay patient and wait for better price action and charts to develop. The danger of another selloff is high, but the positive is that many stocks are already substantially washed out.
We have a mixed start as we await the November jobs news.