The past few weeks summarized in 3 short headlines.
1. Abrupt Awakening From A Thanksgiving Food Coma
The holiday-shortened ended with a bang as investors went into a food-coma and then woke up to worrying COVID variant news. The Dow Jones and S&P 500 both dropped around 2% on the week of 11/22/2021 while the NASDAQ dropped a total of 3.5%. The bulk of these losses occurred on Friday after the South African Variant called “Omicron” was discovered and publicized. For the first time in 9 months, the VIX jumped up to 29, signaling that volatility was at a peak last Friday.
Worrying that oil consumption will be reduced from the variant, the price of oil tumbled 12% down to under $70 a barrel. With investors concluding the variant will slow economic growth, inflation decreased as bond yields dropped last Friday. Fears about tightening monetary policy and the Omicron variant persisted for the second week in a row as this week, all three major US indexes fell from 1%-3%.
The Nasdaq was hit the worst as its tech-heavy companies all took a major fall, resulting in a loss of 2.6% on the week. The potential regression of economic growth due to the new variant has had a bit of a positive effect. Bond yields dropped significantly as a slowing of economic growth represents lower inflation.
In other positive news, on Thursday, the Senate approved a bill to fund the government through February 2022, avoiding a potential government shutdown and political disarray. Even though bond yields are dropping, the Congressional testimony this week by Jerome Powell suggests the Fed is getting more and more anxious about rising inflation.
Investors will hate to see stricter economic policy as the markets usually don’t fare well in those types of conditions. Now, in this third week which started on 12/6/2021, after two consecutive down weeks, the market surged and made serious progress heading into the end of the year. All three major indexes rose around 4% on the week on the tails of the healthy rebound. The rebound also applied to oil as prices rose above $70 once again. Inflation also increased demonstrated as yield rates rose back to over 1.4%.
2. The Holiday Spending Season
Historically, Thanksgiving has heralded the Holiday shopping spree with Black Friday and recently Cyber Monday. In the last few years, consumers have adapted their spending styles as they now shop online more than ever in previous years. With supply chain issues rampant throughout all industries, shoppers might go into physical stores to look for in-stock products.
This year, the NRF (National Retail Federation), predicts growth of 8.5%-10% in retail shopping for the holidays with a savings rate of 7.5%. The savings rate is significantly higher than in previous years, with an average of 6%, but it’s just a lingering sign of the pandemic. Those looking to buy high-ticket items or the newest trends will have a full plate finding them as shortages are becoming more and more frequent online and in physical stores.
Investors should be aware of a sugar high as next year’s gains might not be so prominent. The momentum of the holiday season should carry into early 2022, but overall growth might not come so easy. Shown by the recent upheaval of the market at the new variant’s mention, significant market swings should be expected in the future.
This month, December, should be a present for investors as historically the S&P 500 has risen 1.5% in the last segment of the calendar year.
3. Omicron Variant
If you pick up the TV remote and turn on any major news outlet, you’ll see the words “Omicron Variant” flash across your screen more than once. This highly mutated version of the coronavirus we’ve come to all love was just classified as a “Variant of Concern” by the WHO. This designation is the most severe used by the WHO and shows that this is a significant threat.
Mutations allow this variant to spread rapidly among unvaccinated and vaccinated people. Memories of the Delta Variant resurfaced in the minds of many concerned as travel restrictions are already beginning to be imposed on African countries. Though this might prevent the further spread from Africa, many scientists worry that the variant might have already spread beyond control.
Among the affected countries, England, Belgium, and Italy have all reported cases and imposed travel restrictions. Israel, on the other hand, after only one case closed its border to all foreigners for 14 days. This highlights many other problems with vaccine distribution as the relatively poor African continent wasn’t provided sufficient access to life-saving vaccines. This variant arose at a very unfortunate time as the holiday season rolls around and traveling increases. Stay safe!
A calm month was upended by the spread and discovery of a new, potentially dangerous variant. Thanksgiving, Christmas, and the Holidays mark the beginning of a hike in retail shopping and momentum that should last into 2022. The new variant is troubling due to its ability to spread and its inconvenient time as traveling starts to pick up for the holidays.