Seen but Not Seen
Ticks come to mind. Every once in a while, you come out of a few days (or more) in a wilderness environment surprised at just how many ticks you can find all over your own body. In your gear, too. You didn't feel a thing. Thank goodness for medics, Vaseline, Bic lighters and a good set of tweezers.
Then there is the story of Lance Corporal de Gaulle (not his real name, but he was French). The Lance Corporal was one of my favorite, most dependable fire team leaders. I could detach him and give him independent orders. He was always where he was supposed to be, when he was supposed to be there. Oh, and did he ever love Van Halen. Not that de Gaulle could sing, but that never stopped him from trying.
One hot, humid jungle day, we had to cross a clearing. Training exercise, but we were tactical, and we were competing head to head against Army Pathfinders (back when that was a separate unit), so performance mattered. One by one, the group ran across the clearing covered on both ends and on the flanks by friendlies. There was a lone fallen log that each fellow had to traverse seemingly placed right in the middle of that gap in the jungle canopy. I just remember de Gaulle, who was short, climbing on top of that log and stopping. Out in the open. Strangest thing. He didn't care, and he wouldn't listen. He suddenly went ballistic. He laid out the first guy that tried to help him, and then the second, who was my senior fire team leader. No fun at all. Suddenly, he calms down, starts tearing off his equipment and then his clothing. Then he almost collapses.
On his upper, inner right thigh is a bright yellow caterpillar. Obviously poisonous. Somehow this critter had gotten inside of de Gaulle's trousers and bitten him without de Gaulle ever feeling a thing. The bright red spider legs of infection were already visibly spreading. He had a fever too, and here we are about two and half klicks (kilometers) from a known Navy field hospital. Call for medevac. No chopper available. No roads. We're going to have to carry this kid through the bush. And run, run for our friend's life.
For several days now, I had felt like a lone market voice, Citing the lack of a volume-based confirmation for the rally enjoyed by U.S. equity markets over the first three days of the week was not something popular to point out to the bulls. Not that these bulls are necessarily wrong. That said, we cannot assume that they are right until both price discovery and conviction agree, which we still do not see.
On Thursday, the Consumer Discretionary SPDR ETF (XLY) , the REITs SPDR (XLRE) and the Technology SPDR (XLK) all surrendered more than one percentage point for the session as nine of 11 sector select SPDR ETFs closed in the red. The Nasdaq Composite closed down 1.71%, and it got even uglier for the small-caps. The Russell 2000 surrendered 2.27% for the session. In fact, outside of the Dow Industrials that were essentially flat and the Dow Transports that closed up small, the selloff for the day was rather broad. By the way, the Nasdaq Composite did give up the 21-day exponential moving average (EMA) on Thursday.
Still, there was a decrease in aggregate trading volume from the day prior, which is a phenomenon we have experienced all week. Defensive sectors outperformed all other types as a study of the Omicron variant of the SARS-CoV-2 showed the new strain to be as much as 4.2 times more transmissible as its cousins. Even if less severe in outcome, which still is unproven, this would certainly impact economies and supply chains still trying to unscrew themselves. Investors were talking no chances ahead of what will be highly focused-upon data for November consumer prices in the U.S. on Friday morning, half a week ahead of the Fed's next policy decision. Traders used to say "sold," now they hit the sell button... on baskets of securities.
Losers beat winners on Thursday by almost three to one at the New York Stock Exchange and by more than three to one at the Nasdaq Market Site. Advancing volume comprised 24% of the NYSE composite and 29.7% of the Nasdaq composite for the day. Aggregate trading volume for S&P 500 constituent names contracted from the day prior for a seventh consecutive day, falling 9% short of the 50-day volume simple moving average (SMA) for the index. For constituents of the Nasdaq Composite, falling aggregate volume hit a fifth consecutive day as Thursday's aggregate fell 10% short of the 50-day volume SMA for that index. For a pleasant change, the dwindling trading volume came on weakness and is thus a potential positive, or at least not as negative.
On The Virus
While the recent focus is on Omicron, the Delta variant is still the most prevalent here in the U.S. and likely behind most of the recent surge in domestic new infections and hospitalizations now hitting northern states where colder weather has set in. In 12 of the 50 states, the seven-day average of COVID-caused hospital admissions has increased by 50% or greater in just two weeks. Two weeks after Thanksgiving. Makes sense. More holidays on the way.
We know that slightly more than 60% of the U.S. population is what has been referred to as "fully vaccinated," meaning that they have received either two doses of the Pfizer (PFE) /BioNTech (BNTX) or Moderna (MRNA) vaccines or at least a single dose of Johnson & Johnson's (JNJ) jab. The fact is that we also know the efficacy of these vaccines wanes and that three doses will soon be what people refer to as "fully vaccinated." Just my opinion, but as we also know the virus itself will continue to mutate and that unvaccinated persons are considered 14 times more likely to suffer severe outcomes once infected, that "fully vaccinated" will simply become "up to date."
Are you up to date? If having been boosted is the metric, then by the most recent tally I have seen, less than 20% of us are. Will the economy stop as infection rates increase? I doubt it. Will folks who can work from home see returns to a centralized site pushed out even further? That's likely. Will schools shut down as infections increase? We see how great a percentage of hospitalized individuals in Africa are children. Schools might shutter should that trend cross the Atlantic. What happens to a too-slow-to-recover Labor Force Participation Rate then? Households that need to have two earners but have only had one for almost two years now are only starting to get those secondary producers back to work.
Fun Facts & Some Opinion
The Department of Labor reported that state unemployment offices received 184,000 seasonally adjusted initial jobless claims for the week that ended Dec. 4, which was down 43,000 from the week prior and good for the lowest level seen for this metric since September 1969. Interestingly, once backed out of the seasonal adjustment, the actual total of claims for the week added up to 280,600, which was an increase of 29% over the week prior. By the way, North Carolina and Wisconsin were the states hardest hit by layoffs in what was not really such a hot week for employment after all.
In a 64-36 vote, the U.S Senate passed a procedural change that allows the debt ceiling to be raised on a one-time basis through the use of a simple majority. Now, I understand where the 50 Democratic senators who want to increase the debt ceiling are coming from. I also understand where the 36 Republican senators who are not ready to increase the debt ceiling are coming from. Just where exactly are the 14 senators who will vote to allow someone else to increase the debt ceiling, but vote against that actual bill when it comes up so their fingerprints are not on it, coming from? I mean, I understand it. I would just rather be either one of the 50 or one of the 36, so my constituents would know what I stand for.
On Thursday, Treasury sold $22 billion of 30-year paper in an auction that went off in far sloppier fashion than did the auction of $36 billion of 10-year notes the day prior. Different day, different market? You ain't kidding. At a sub-par 2.2 bid to cover, Indirect Bidders (foreign accounts) only took down 60.7% of the issuance as Primary Dealers were stuck with 20.7%. A high yield of 1.895% was awarded, which was out of line with where secondary markets were at the time.
Also on Thursday, ahead of Friday's CPI data, perhaps because the numbers are going to come in hot, the Biden administration's Commerce Secretary Gina Raimondo made the media rounds and said "We still feel quite confident that this (inflation) is a short-term problem, not a long-term problem. It is still driven largely by disruptions in the supply chain and labor market that came about because of COVID. And so for that reason, we believe help is on the way, that things are going to get better."
Psst... The message was probably timed for political purposes, but she's not wrong. Consumer level inflation has been much hotter than anyone projected, but will likely cool off throughout the second quarter. Maybe even late in the first. Ultimately, inflation will prove to be as transitory as the impact of the pandemic itself.
Oh, What A Night
It was like something out of earnings season. Broadcom (AVGO) took first prize as it raised guidance, increased the dividend and boosted the buyback, while also beating on the top and bottom lines. Markets also cheered Oracle (ORCL) and Costco (COST) , but were not so enthusiastic about Lululemon Athletica (LULU) or Chewy (CHWY) . I'll be back in a few hours with more on at least one of these. But first, ladies and gentlemen, the CPI....
Economics (All Times Eastern)
08:30 - CPI (Nov): Expecting 6.7% y/y, Last 6.2% y/y.
08:30 - Core CPI (Nov): Expecting 4.9% y/y, Last 4.6% y/y.
10:00 - U of M Consumer Sentiment (Dec-adv): Expecting 67.0, Last 67.4.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 467.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (ASO) (1.05)