Markets are seeing some upside action Tuesday morning as they work to discount a steady flow of negative news. The failure of the Build Back Better bill was a surprise, but the market is already looking ahead to the potential for piecemeal legislation in the new year.
The Omicron variant remains the big uncertainty but there continue to be indications that even though it is spreading quickly, it is not as severe as the Delta variant. While there is still not much clarity, the biggest issue for the market is to what degree governmental action will impact the economy. The market is holding up relatively well in view of the news, and travel stocks and "reopening" names are not looking bad.
President Biden will speak Tuesday about Omicron, although it has already been announced that the administration will be providing 500 million free test kits and will assist overburdened hospitals. There is no talk about shutdowns, but that is more of a local decision. There is a wide variation in approaches around the country, with the Midwest and East Coast taking more aggressive action than in the South.
What is most notable about the current market is the number of stocks that are deep into bear territory and have already pulled back substantially from highs. As I've discussed, the indexes have failed to reflect what has really been going on in this market since February, but the big-caps are finally starting to catch up to the downside. The stealth bear market is not so stealthy now. Even the folks are television can see it at this point.
The primary trading issue is whether the worst-hit stocks can start to bounce. Tax-loss selling is winding down, the potential for the end of the year seasonality is good, and many stocks are grossly oversold.
One sector that many are watching is biotechnology, which has had a terrible year. However, the group has recently been illustrating a little relative strength. It is promising that the number of new 12-month lows has not been expanding, although the senior indexes are soft.
We have some rebound action Tuesday morning as market players are hopeful that uncertainty has been discounted to some degree. We will see if the buyers can gain some momentum, but there is still substantial headline risk from Omicron. The key right now is that it appears to be mild, but we still need more data.
I'll be looking to put more capital to work, but I'm moving incrementally and prepared for a high level of volatility.