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  • Scott Poore, AIF, AWMA, APMA

It's The Most Wonderful Time Of The Year

Fears over the Omicron have eased as positive data out of South Africa is proving the variant much less deadly than it's predecessor Delta. Data from South Africa's (published origin of the variant) National Institute of Communicable diseases indicates that Omicron is only half as likely to cause serious illness as the Delta variant. In addition, a study out of Gauteng, South Africa (ground zero for Omicron) shows a much quicker peak in Omicron cases versus Delta.

Hospitalizations with Omicron are also proving less likely than Delta with less time spent there with the new variant. This is positive news regarding the variant that caused a freakout in equity markets just 14 days ago. In the U.S., for comparison sake, COVID infections equal about 15% of the population and another 62% have been vaccinated. That's a total of roughly 77% of the U.S population with known antibodies. In South Africa, only 5% of the population have contracted COVID and only 26% have received the vaccines. With 31% of the population having antibodies and Omicron not wreaking havoc on that population, the U.S. should be able to withstand this next wave of cases rather well, all things considered.

In economic news, the data was mixed last week. Consumer Sentiment, as measured by both the UofM survey and the IPSOS survey, showed a slight improvement in sentiment. Redbook sales dipped last week, but still remain elevated. Wednesday's release of Retail Sales this week will help confirm the strength of holiday sales this year. Last week's JOLTS number on job openings showed the key matric going backwards are more jobs are available than people willing to take them.

In addition, Nonfarm Productivity showed current employees working longer hours and Unit Labor Costs going up in order to retain key employees as new employees are hard to attract. Lastly, the Consumer Price Index (inflation) rose 0.8% in November compared to 0.9% in October. However, CPI increased to its highest year-over-year growth since 1982. This week, the Fed will meet to announce key policy decisions before we head into the dead period of the holidays. It's expected that Chairman Powell will announce a faster pace to Tapering which could influence bond yields this week.

Stocks moved markedly higher last week, recovering all of the losses since the Omicron selloff began in late November. As has been the pattern all year, each time the index hits the 50-day moving average, investors step in and buy the dip. Our anticipation is that markets will not prove as predictable in 2022. In fact, there are some headwind risks on tap for 2022.

We'll be flushing these out in more detail over the coming weeks as we prepare our 2022 Capital Market Assumptions. In short, the headwinds are somewhat a continuation of what has been plaguing investors' fears in the latter half of 2021: inflation, Fed policy error, shipping crisis, and labor shortages.

In the meantime, it appears a Santa Rally is in play. Most recently, buybacks of US corporations of their own stocks has risen and is on pace to set a record high in 2021. The sentiment and technical indicators are now pointing to higher equity markets from here.

In addition, global money market flows have not slowed in 2021. It is likely that year-end allocation reviews among institutional and private wealth investors will conclude a current over-weight to cash in light of rising inflation. This sets up for the Santa Rally to likely continue and for the January Effect (rise in stock prices after December tax-harvesting and allocation of year-end bonuses). Let's hope Santa comes down the chimney with positive returns for every boy and girl investor.


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