When I want to know what is happening with world health and epidemiology, broadly speaking, my first source of info is always...the Russell 2000. Seriously? What the...
The mere mention of a single Omicron case in the USA sent the markets plunging yesterday afternoon. Interactive Brokers sends me alerts when markets move more than 2%. Yesterday I received one in the morning ( (IWM) +2%) and then another one ( (IWM) -2%,) helpfully sent at 4:07 pm ET. The jump in the morning was just as puzzling as the drop in the afternoon, but, man, this market is just a puppet on a string.
As a community, those of us in the investing world are just so addicted to the narrative. It's sad. It has totally replaced equity research, at least in the short term. The narrative entering yesterday's trading session was that the global economy, especially in the U.S was rocking along and would produce above-average corporate earnings growth until kingdom come, Omicron be damned.
That narrative completely ignores the deleterious impact of inflation on corporate profitability. But just as I injured my ankle climbing up into the roof to scream that at the top of my lungs, we have one case of Omicron in the U.S., and, bam, the narrative goes the other way.
Let's just focus on the truth.
- Stocks are more fully valued than they have ben at any time in this economic cycle. The S&P 500's P/E is higher and its yield lower than at any time since the Crash of 2008.
- Winter is coming. For the Northern Hemisphere that means more seasonal ailments, and unfortunately one of whose is Covid-19.
As I mentioned in prior RM columns, I had Covid, and trust me when I tell you that you don't want it. I am now fully Pfizered and hoping against hope that mRNA vaccines (like the one developed by Pfizer's (PFE) partner, BioNTech (BNTX) ) last forever. I have done a lot of work on this sector through my research on Arcturus Therapeutics (ARCT) , and I know that such permanence is unlikely. I will get boosted as soon as practicable. Will that booster protect me against Omicron? I don't know, and I don't think anyone does.
It just breaks my heart to go to worldometers.info every day, but it is part of my job. The U.S dropped more than 100,000 new cases and more than 1,600 COVID fatalities yesterday. The human race has done a horrible job of fighting this virus, with the exception of China, where the per capita case numbers are extraordinarily low.
But I try to stick to stocks, not geopolitics. So here goes.
I think broad-based lockdowns are extremely unlikely. They didn't work the first time - again, excluding China - and I just don't see them happening again. Politicians have proven me wrong before. That said, I would be taking profits on Zoom (ZM) here and Peloton (PTON) is still, to quote myself, a disaster, so that's not going to change because of Omicron.
What to buy? Exxon (XOM) almost made me weep yesterday after I downloaded their corporate presentation and searched for "Mozambique." It's right there on page 17. Exxon will continue with its LNG project in Mozambique. As a wannabe Portuguese speaker (I'm still terrible after many trips to Brazil, sadly) and a firm believer that Africa's energy poverty can only be alleviated through hydrocarbon extraction, I was pretty damn happy that XOM is not, as had been rumored, killing its LNG project in Mozambique. Darren Woods and his team appear to have fought off the "wokies" on XOM's Board for now. The world is a better place for that victory. I also own XOM and the market reacted positively to the corporate presentation, so that's a nice bonus.
But that's the inanity of our modern world, especially in Europe. I am in the UK now. It is cold. But politicians want to demonize the very fuels that could keep people warm - and stave off seasonal illnesses, I would hope, during this already cold winter. Meanwhile 5.2 million people have already died of Covid and the arrows are sadly pointing upwards. Ugh.
Stick with energy, be wary of stay-at-home plays and realize that in the current no-yield world (thanks, Janet and Jerome) stocks ARE bonds. Not as an asset class, given the puny S&P 500 yield that I mentioned above, but there are high-yielding dividend-safe outliers in this yield-free market... XOM certainly is one. Own safety.