Markets Provide Head-fake To End Thanksgiving Week
Typically, holiday-shortened weeks are met with lower trading volume. That usually leads to less volatility as fewer large trades have the potential to move the market. However, as we've learned over the past 21 months, never doubt the panic of COVID to interrupt typical market patterns. Friday's market action was driven by panic over a new African variant of COVID named "Omicron." There have been 10 documented variants of COVID so far. None have turned out to be as deadly as the original strain. Omicron marks the 11th strain. According to Dr. Angelique Coetzee, the South African physician who first alerted the authorities about the new strain, "Their symptoms were so different and so mild from those I had treated before."
While a few cases have been found in the U.K., none have been documented in the U.S., thus far. On late Friday, after the market sell off, Goldman Sachs issued market commentary in which they stated, "this mutation is unlikely to be more malicious and that the existing vaccines will most likely continue to be effective in preventing hospitalizations and deaths." The long-and-short...no need to change investment strategies.
The macroeconomic news last week was positive, overall. The Chicago Fed National Activity Index moved from negative in September to positive in October. Existing Home Sales came in just above expectations. The preliminary reading on the Markit Manufacturing Index showed positive month-over-month improvement. Weekly Jobless Claims dropped by more than 70,000 for the week to reach a new low. Initial Claims are now below the pre-pandemic low of 211,000 claims on March 7, 2020. Continued Claims dropped for the 2nd consecutive week and have declined 30% since extended pandemic benefits ended.
Third quarter GDP was revised slightly higher last week from 2.0% to 2.1%. Most important is the state of the U.S. consumer. Personal Income rose last month from -1.0% in September to +0.5% in October, beating market expectations. Personal Spending rose from 0.6% in September to 1.3% in October. However, Consumer Sentiment did drop for October, marking a trend of making newer lows since April of this year.
It would appear that the market is poised to begin recovering from Friday's panic-induced sell off. Futures on the S&P 500 were up about 1% in early activity this morning. Oil, which sold off 8% on Friday over concerns of more lockdowns or slowdowns due to Omicron, is higher this morning by 3%. Markets are likely to cautiously trend higher as information about the new COVID variant and Black Friday sales become available. There is some anecdotal evidence that sales volumes in physical stores were better than online sales. Online sales on Black Friday came in at $8.9 billion last week, compared to $9 billion in 2020. Conversely, visits to physical stores on Black Friday increased by 47.5% compared to 2020. Shipping delays due to the supply chain crisis likely caused shoppers to pick up items in-person in order to insure presents in time for Christmas.
Speaking of shipping, there appears to be some good news on that front. The number of containers at the Los Angeles / Long Beach ports has declined 33% since penalties for lengthy port stays was announced on November 29th. This has helped ships to leave anchor and get into port for unloading. Since the number of ships anchored reached a record of 111 a few weeks ago, the number has declined to 61 currently anchored. Progress to be sure, but still a long way from normal operation. On the price of oil, it appears that good news was short lived. While the Biden administration did open 80 million acres in the Gulf for oil lease, which is likely to help production output, Friday's news was not so positive. The Biden administration late Friday stated an increase in oil leasing fees from 12.5-18.75%. This move would simply increase the price of gas even more as oil producers will likely pass those costs on down the line to consumers. It would appear for now that inflation and oil prices are headed higher.