Economy4 hours ago (Dec 26, 2021 06: 00AM ET)
(c) Reuters. FILE PHOTO: A street sign, Wall Street, is seen outside New York Stock Exchange (NYSE) in New York City, New York, U.S., January 3, 2019. REUTERS/Shannon Stapleton/File Photo
By David Randall
NEW YORK (Reuters) -Investors are closely watching the latest news on the rapidly spreading Omicron variant https://www.reuters.com/business/healthcare-pharmaceuticals/how-worried-should-we-be-about-omicron-variant-2021-12-14 for signs of how much the virus could impact the U.S. economy and earnings as the market heads into what has historically been a strong time of year for equities.
Overall, the is slightly ahead since Nov. 24, prior to news of the variant hitting markets. Investors were more confident about the economic effects of the variant’s arrival on Thursday. This was a record-breaking close.
“The market is extremely reactionary now and every little bit of news has a huge impact,” said George Young, a portfolio manager at Villere & Co. Young is planning on taking advantage of any Omicron-induced volatility to add to stocks that rely on tourism and travel such as bank company First Hawaiian (NASDAQ:) Inc. Shares of the company are up 14.4% for the year to date.
According to the World Health Organization, Omicron variants are causing infections to increase by 1.5 to 3 times per day. The variant now accounts for 73% of all new U.S. cases, up from less than 1% at the beginning of the month. [L1N2T60ZU]
Investors are now less pessimistic about Omicron’s virulence than they were in the beginning of the month. The S&P 500 closed down 2.3% on Nov. 26 after the variant was discovered, on fears of fresh economic lockdowns.
A South African study offered hope about the severity of Omicron and the trend of COVID-19 infections on Wednesday. Investors expect that the Omicron variant will have a limited impact on vaccine manufacturers’ shares, which is why they fell in December.
This bodes well for the so-called Santa Claus rally. Historically, U.S. stocks have risen during the last five trading days of December and the first two days of January in 56 out of 75 years since 1945, according to data from CFRA Research. This year, the time period starts on Dec. 27. The average Santa Claus rally has boosted the S&P 500 by 1.3% since 1969, according to the Stock Trader’s Almanac.
It is not clear how Wall Street analysts think Omicron will affect earnings and the economy. Estimated 2022 S&P 500 earnings growth was at 8.3% as of Friday, compared with 8.0% at the start of December, according to Refinitiv data.
Goldman Sachs (NYSE:) cut its estimate https://www.reuters.com/markets/us/goldman-sachs-cuts-us-gdp-growth-forecast-2022-over-omicron-fears-2021-12-04 for U.S. GDP growth to 3.8% from 4.2% due to the uncertainty of the impact of the Omicron wave.
POSSIBLE VOLATILITY Although Omicron will have an economic impact, U.S. consumer spending is expected to remain strong, according to Cliff Hodge (chief investment officer at Cornerstone Wealth). He is looking for signs that Senator Joe Manchin might reach an agreement to support President Joe Biden’s $1. 75 trillion Build Back Better https://www.reuters.com/world/us/biden-says-he-manchin-are-going-get-something-done-2021-12-21 climate and social spending bill. Manchin, who is expected to provide one of the crucial votes for the bill’s passage in a divided Senate on Sunday, stated that he couldn’t support the bill as it stands. The Senate Majority Leader Chuck Schumer stated that the Senate would vote on the bill in January.
We need some good news, whether it’s on the Manchin front of Omicron, to get a rally moving,” Hodge stated. “We are fully invested, and expect a little relief rally into January.”
The week ahead will not be filled with economic data. Tuesday’s release of the S&P Case-Shiller U.S. price index is one notable data point.
The lack of new information about the strength of the economy in a time of rising coronavirus cases may make the stock market volatile through the end-of-the year, according to Dana D’Auria (NYSE: PMC), cochief investment officer at Envestnet.
” The market is quite adept at pricing in and leading from what we learn about the health side,” she stated.
If Omicron cases keep rising or economic restrictions are reimposed, investors may rebalance into shares of technology giants like Apple Inc (NASDAQ) that have emerged in defensive play due to their large cash positions, and the revenue growth resulting from remote work.
“If Omicron causes real problems, I would be prepared for a volatile market,” she stated.
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