"We should all be concerned about Omicron - but not panicked. If you're fully vaccinated and especially if you got your booster shot, you are highly protected."
- President Joseph R. Biden
Heck of a Day
It came after a back-alley three day beatdown of some significance. It came after the S&P 500 had ceded some value for five of the past six sessions. The Fed had signaled a less accommodative monetary future. Key Senator Joe Manchin had himself signaled the reduced probability of ever increasing fiscal support for the economy, and by extension... financial markets. A new more highly contagious variant of SARS-CoV-2, the Omicron strain, has taken precedence over the Delta variant of this awful virus seemingly everywhere it has been detected, and done so in a matter of just a few days. Suddenly, businesses more reliant upon physical interaction between human beings were unsure. Suddenly, remote or hybrid white collar work was re-established as the standard wherever possible. Suddenly, fourth quarter economic growth, currently running at a robust estimate of 7.2% (q/q, SAAR) according to the Atlanta Fed's GDPNow model, had been cast into a shadowy, dark place, while private economists were slashing their own forward looking projections for economic activity.
On Tuesday, more and more folks we all know, claimed to have tested positive for the virus at some point this week. Here they were, working, on television right before our eyes. Most of us probably also know several folks away from the public eye, who have tested positive this week, or at least know that they need to test because of their close contact with newly infected individuals. I was in both my local Walgreens (WBA) and CVS (CVS) branches on Tuesday because my wife asked me to find some kind of decorative box (meant for gift wrapping) that she claims they both sell. I did not find her little boxes. Both stores were out of stock... of small holiday themed boxes, and of at-home Covid testing kits. Both stores had big signs at their entrance doors, letting shoppers know that they had no tests, just in case that was the sole reason why you were there.
All at once, I think, though we do not know enough about this Omicron variant, people have started to believe that this new variant will not stop the economy in its tracks the way past variants have. All at once, it seemed that the two Joes, Biden and Manchin were still talking. All at once, the yield curve responded not just to a Federal Reserve intent on corralling inflation, but maybe an economy that might not roll off of a cliff.
The President
President Biden encouraged the unvaccinated to get vaccinated, while encouraging the unboosted to get boosted. Biden said that the federal government will help with supporting thousands of vaccination sites and deploy hundreds of people to help with the process, beginning in New York City. The president plans to have the government procure and distribute 500M rapid, at-home Covid tests, starting in January. The president said that 1K medical military troops (doctors, nurses, medics) would be mobilized to augment hospital staffs in January and February. Six emergency response teams are already being sent to Michigan, Indiana, Wisconsin, Arizona, New Hampshire, and Vermont. FEMA has also been directed to add hospital beds wherever needed.
Lastly, President Biden added "If you are vaccinated and follow the precautions that we all know well, you should feel comfortable celebrating Christmas and the holidays as you planned." Algorithms, especially, high-speed, momentum creating/sustaining, keyword reading algorithms that impact the point of sale across financial markets read this stuff, and react faster than you and I ever could.
Marketplace
Perhaps the rally had been set up by the depth of the pressure placed on financial markets over the prior three days. Perhaps. Micron (MU) earnings were a catalyst as investors were reminded just how integral semiconductors are to all things, not just all things technology related, but really in 2021... all things. Pricing power? You bet. Inelastic demand? For memory? Probably something pretty close to it.
The yield curve came back to life, the US Ten Year Note paying closer to 1.5% by day's end, and not the 1.35% it paid less than two days earlier. Call options appeared (anecdotally, sample size of one) to offer more premium than put options with strike prices equidistant from last sales, and with like expiration dates. A strong equity market was led by cyclicality and growth over more defensive sectors for a nice change.
Breadth was terrific. Winners beat losers by more than 4 to 1 at the NYSE and more than 3 to 1 at the Nasdaq. Advancing volume comprised 86% of the NYSE composite and 80.1% of the Nasdaq Composite. There are, however, a couple of bones that we must pick if we are to be honest about Tuesday's session. Not that aggregate trading volume was terribly light, but it was, at least in places, lighter. The action was notably lighter for NYSE listed names, where close to 11% fewer shares changed hands than on Monday. That said, aggregate trading volume for Nasdaq-listed shares actually increased just a smidge from Monday.
The last bone to potentially pick is technical, and not necessarily broad in nature. Let's have a look.
The S&P 500 regained both its 50 day SMA (huge) and 21 day EMA (nice) on Tuesday, but did so on lighter trading across constituent names.
The Nasdaq Composite closed below both the 21 day EMA and 50 day SMA for a fourth consecutive day, and for a fifth day in six on nearly even trading volume with the day prior. Significant? Possibly. However...
The Nasdaq 100, which contains only the 100 largest stocks domiciled at the Nasdaq Market Site sans financials, so all of your mega-cap tech names are here... did take back its 50 day SMA on Tuesday and on trading volume 10% above the 50 day trading volume simple moving average for this index, though resistance was found at the 21 day EMA.
Short-term conclusion? Potential (no promises, this is 2021) reversal of confidence in the big cats. Think Amazon (AMZN) , Meta (FB) , Alphabet (GOOGL) , Microsoft (MSFT) , Tesla (TSLA) , Nvidia (NVDA) and Apple (AAPL) . You get another day of this, and for me, trend support at the bottom line in the already drawn up channels...
.. will be confirmed. In English, this means that a market potentially in correction becomes a market still in an uptrend that has once again survived a period of intense pressure. Santa and his reindeer await such confirmation. Jingle Jingle.
Oh, By The Way...
The FDA could authorize Covid fighting pills developed by both Pfizer (PFE) and Merck (MRK) this week, maybe as soon as today (Wednesday). The Pfizer drug Paxlovid reduced the risk of hospitalization in unvaccinated, high-risk patients 89% of the time, while the Merck drug Molnupiravir proved somewhat less effective at 30%. Both drugs require that patients begin treatment shortly after showing symptoms.
... and ...
Israel is planning to administer fourth shots of existing Covid-19 vaccines to patients over the age of 60, as well as to health care workers. The shots must be given at least four months after patients have received their third shots, or initial boosters, and still need to be approved by that nation's health ministry.
Check This Out
News is being reported at Defense One that U.S. Army scientists working at Walter Reed are weeks away from announcing that they have developed a new vaccine that protects individuals from all variants of Covid-19, as well as from all SARS-origin coronaviruses. The new vaccine, which uses a "soccer ball" shaped protein with 24 faces has already undergone trials in animals and Phase 1 clinical studies in humans with as far as we know... positive results.
The Phase 1 results are still undergoing review and this vaccine must still successfully navigate both Phase 2 and Phase 3 testing. So... we're close, but we're not that close.
Did You Notice?
Moody's Investors Service upgraded the debt of Apple to Aaa (the best rating they have) with a "stable" outlook. Moody's expects Apple to maintain its strong liquidity and earnings power over the next five years. I am a little stunned that Apple did not already stand with Moody's highest rating.
Readers will see that the AAPL breakout past the cup with handle inspired $153 pivot is still very much intact. Resistance was obviously reached at the doorstep of the highly publicized $3T capitalization level, and that might have been an algorithmically triggered (sheer opinion) event that has been felt across the entire equity space. Support has been found at Apple's 21 day EMA, and as readers can easily discern, neither the Relative Strength Index nor the Full Stochastics Oscillator are in the uncomfortable position that they were a few days ago. The daily MACD still looks a little unnatural, so all of the kinks have not been worked out, but I see no reason to change my already established $191 target price.
Economics (All Times Eastern)
08:30 - GDP Growth (Q3-F): Flashed 2.1% q/q SAAR.
10:00 - Consumer Confidence (Dec): Expecting 110.5, Last 109.5.
08:30 - Existing Home Sales (Nov): Expecting 6.52M, Last 6.34M SAAR.
10:30 - Oil Inventories (Weekly): Last -4.854M.
10:30 - Gasoline Stocks (Weekly): Last -719K.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (KMX) (1.46), (CTAS) (2.64), (PAYX) (.80)
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