Good morning. Happy Friday.
Sevearl Asian/Pacific markets were closed. China, India and Malaysia did well; Australia was weak. Many Europe, Africa and the Middle East markets were closed too. Among those open, there were no outstanding movers. Futures in the States point towards a slight positive flat open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Will inflation go away?
Seeking Alpha wishes all the readers of Wall Street Breakfast a Happy New Year! Make way for 2022!
Risk: Inflation is by far the No. 1 economic concern going into 2022. Many are worried about a period of escalating prices, and don’t trust what they’re hearing from mainstream economists and central bank officials. At the start of 2021, the U.S. was forecast to end the year with 2% inflation, but it is close to 7% instead. Fed Chair Jay Powell has subsequently backtracked on his “transitory” thesis, with the term endangering a delayed reaction to the current price environment.
“I think the biggest risk is that expectations about inflation will continue to rise and the more they rise, the more difficult those expectations are to manage,” said Gad Levanon, head of the Conference Board’s Labor Markets Institute. “It was a hard-earned accomplishment for the Fed to able to anchor inflation expectations, and they are at risk of losing it.”
Opportunity: Inflation has been a symptom of easy money policies, but more importantly, due to supply bottlenecks and increased consumer spending. If those factors were to ease, much of those fears could dissipate. The Fed could also pull off a delicate balancing act, where both growth and inflation decelerate, but not so much that the economic expansion is put in jeopardy.
“I do think that we’ll see a gradual slowing in inflation throughout 2022,” predicted Gus Faucher, chief economist at PNC Financial Services Group. “After a big run-up in energy prices, they’re going to stabilize or come down next year. I do think that a lot of the higher price pressures from the reopening of the economy are going to fade, things like airfares, hotel rooms and new and used cars.”
What about central bank policy?
Risk: There are some negative consequences that could arise if the central bank fails to react appropriately to the current rise in inflation. Asset prices have inflated due to the message from the Fed that any tightening of policy will be limited and gradual. However, if the bank is forced into more extreme monetary policy action, richly supported valuations could melt away.
“We are moving from a period in which central banks have tried to be predictable and suppress volatility to one in which they will increasingly be the source of surprises,” analysts at Bank of America wrote in a research note.
Opportunity: Volatility may still be the name of the game, but if history is any guide, the Fed’s “taper tantrum” of 2013 was followed by strong gains for equities, as traders bet the economy was healthy enough to stand on its own. Following Ben Bernanke’s comments in May 2013, stocks fell 5.8% in the next month, but for the rest of that year, the market was up 17.5%. Raising rates in 2022 could also be a “net positive” event by signaling that the central bank feels comfortable about the U.S. recovery.
“I go into next year feeling like the baseline outlook is a very good one. Therefore, actually raising interest rates would be a sign of a positive development in terms of where we are in the economic cycle,” said New York Fed President John Williams. “I’m pretty optimistic that we’re seeing really strong improvements in the labor market. You’re seeing the unemployment rate come down quickly.”
Will stocks keep going up?
Risk: So far, the 2020s haven’t resulted in the high inflation of the 1970s, or the high unemployment of the 1930s, which were both periods in which it took over a decade for stocks to move consistently upward. But some forecasts see an economic deceleration and higher rates for 2022 that could result in a downward shift, especially easy-money policies that helped fuel S&P returns of 31%, 18% and 27% over the last three years, Morgan Stanley’s base-case scenario is for the benchmark index to drop 5% in 2022, while BofA sees the S&P ending the year down 3%.
“They’re not thinking of double-digit returns and they are hoping they don’t get retribution for higher stock market prices,” said Lew Altfest, CEO of Altfest Personal Wealth Management, pointing to the meteoric P/E ratios. “Value will have a run… stocks are going to go back to what are reasonable rates. The question is the timing.”
Opportunity: If these six catalysts break the right way the market could move significantly higher next year, writes Kinsale Trading President Tom Essaye. Among them: 1) Inflation peaks, 2) Central banks don’t tighten too much, 3) Build Back Better, 4) Earnings remain very strong, 5) COVID ends, and 6) GOP wins either House or Senate. He also feels that if all the scenarios come to fruition, the S&P could close as high as 5,775 (it is currently at 4,778).
“I’ve voiced some caution for 2022 recently, specifically that we can expect more normal volatility as the Fed removes accommodation,” Essaye continued. “But that’s not a guaranteed outcome, and there is a path for stocks to continue higher and to again post above-average returns for the fourth year in a row.”
What will economic growth look like?
Risk: Due to widespread inflation, real GDP growth could turn negative on a quarterly basis in 2022. The Fed’s decision to taper its bond buying program and push interest rates higher, could even stall economic growth, or a failure to halt price pressures could lead to the worst of all outcomes: stagflation. There are also other macroeconomic factors at play, like renewed lockdowns seen in Europe, or quarantines and the zero-COVID policy in China, which has driven some 30% of global growth over the past decade.
“If COVID-19 were to have a prolonged impact – into the medium term – it could reduce global GDP by a cumulative $5.3T over the next five years relative to our current projection,” according to IMF Chief Economist Gita Gopinath. That’s on top of the $12.5T in output that was already lost.
Opportunity: The Conference Board, a non-profit research group of more than 1,000 public and private corporations, still forecasts that the U.S. economy will grow by 3.5% in 2022. Take for example the solid growth seen last quarter, despite a rise in coronavirus cases across the U.S., as well as a solid season of corporate earnings. There is also the trend for each successive wave of COVID-19 to have a smaller impact on the economy, while consumers keep up robust spending amid an improving labor market.
“Supported by the expectation of continued healthy financial market conditions, increased production to restock lean inventories, further gains in the consumption of services as consumer and business travel picks up, and a resilient housing market, continued above-trend growth is likely in 2022,” read a forecast from Kevin Kliesen, economist at the Federal Reserve Bank of St. Louis. “At this point, the most probable outcome is 3% to 4% real GDP growth.”
Will labor shortages and supply chain problems continue?
Risk: Labor has been the major concern for many industries, given the shrinking workforce from early retirees, mothers that need to secure childcare and those looking for better-paying jobs. Employers not only need to be competitive within that shrinking pool, but also need to retain their talent. Supply chain disruptions have meanwhile played a key role in stalling the global economic recovery due to logistical logjams, a shortage of shipping containers and a steep rebound in demand that left producers in short supply.
“As we go into 2022, I think it’s this theme of just volatility, and it’s not one particular type of volatility. It’s enormous volatility in our supply chain. It’s everything from input availability, capacity, transportation, labor, it’s COVID adaptations by ways of working adaptation. It’s this accordion economy of sort of stop-and-go and the adaptations required,” declared Shane Grant, CEO of Danone North America. “The theme going forward is just volatility in everything.”
Opportunity: Job growth continues to be very strong and those who do change jobs are often able to secure higher pay. This has led 2021 to see the largest increase in wages over the last two decades. Companies are also starting to rethink their supply chains, including where to source and how to distribute around the world, and that could help things clear up in the coming year.
“The war on talent in 2022 is going to only intensify,” Grant added. “It’s about game-changing people policies, like gender-neutral parental leave, for not only corporate workers, but frontline workers. It’s about institutionalized flexibility. It’s about true commitment to diversity actions. And I think those things are going to become true differentiators in this war for talent in 2022.”
How does the pandemic factor into all of this?
Risk: If the pandemic is allowed to rage on, the world could also see the emergence of vaccine-resistant, or more fatal, COVID variant. Even at the current level, high contagion means hospitalizations and fatalities could remain high. In fact, U.S. deaths from COVID-19 tallied 435K over the course of the year 2021, compared to 385K in 2020. Resulting uncertainty and risk aversion are not good in any scenario and could dampen spirits in the coming year.
“I think we all had we all have employees and family members who say, ‘When’s it going to end?’ And it used to be that there were answers to that, like it was going to end, it’s going to end summer of 2021,” noted Dr. Marlow Hernandez, CEO of Cano Health. “But COVID is not going to end at any point in 2022. No, sorry. Because it’s so transmissible, because it continues to vary.”
Opportunity: Besides current vaccines, there are now a whole host of antiviral therapeutics and antibody treatments to combat COVID-19. Researchers are meanwhile looking to develop a universal vaccine to protect against all present and future coronavirus variants, with many scientists already working on such a jab. There is also the possibility that a rapidly spreading variant that is less deadly could signal a COVID-19 transition from pandemic to endemic, and many peoples’ attitude has already changed to learning how to live with COVID-19.
“In short, instead of trying to turn back the clock to the lost world of January 2020, consider how we might adapt to our new normal,” said best-selling author Dr. Gleb Tsipursky. “COVID will never go away; we need to learn to live with it. That means reacting appropriately and thoughtfully to new variants and being intentional about our trade-offs.”
Today’s Economic Calendar
1:00 PM Baker-Hughes Rig Count
What else to look out for…
Oil could catch ‘price fever’ early in 2022, $100 on the table.
Will Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT) hit $3T next year?
Brace yourself for a Big Tech correction in early 2022 – Loup Ventures.
Nasdaq could rise 20% next year, Wall Street underestimating growth – Wedbush.
Here’s why analysts think REITs will continue to outperform in 2022.
Will managed care companies’ stellar 2021 continue next year? Depends on COVID.
How likely is it that marijuana banking reform gets passed?
What are MKM Partners ‘Black Swan’ Internet predictions for 2022?
Bernstein 2022 machinery outlook: CAT and PCAR up, AGCO down.
10 Ethereum-based projects that could airdrop tokens in 2022 – Crypto Briefing.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets were mixed and little changed. China and New Zealand moved up; South Korea moved down. Europe, Africa and the Middle East are also little changed. Denmark, the UAE, Hungary, Spain and Saudi Arabia are up; Turkey and Austria are down. Futures in the States point towards a slight positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up; copper is flat. Gold is down; silver is up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Starting with… January
2021 has been another wild year, but hopefully one that was good for your portfolio. Today’s Wall Street Breakfast covers the hottest headlines and top stories from the newsletter in 2021. Enjoy the edition and don’t forget to add your own memories in the comments section!
Chaos in Washington: Trading was largely unaffected by the mob attack in Washington on Jan. 6. Terrifying day or historic day for American democracy? Maybe a bit of both. While a mob that stormed the Capitol Building delayed presidential certification and led to horrible violence, it didn’t stop the process or institutions, and lawmakers were able to reconvene later that night.
Social media censorship: The disarray seen in Washington shifted online as both Twitter (TWTR) and Facebook (FB) suspended President Trump from posting on their sites. It marked the social media industry’s strongest actions to date on reining in controversial content, citing “risks of violence” and “repeated and severe violations” of their policies. The platforms had been labeling election-related tweets by Trump since November, but he eventually was kicked off the platforms.
Crypto milestone: The total value of the entire cryptocurrency market surpassed $1T for the first time as Bitcoin (BTC-USD) rocketed through $37,700. Many large institutional investors piled into the market, looking to diversify even more of their assets to hedge against inflation and geopolitical risks. A large number of retail investors and trend-following quant funds also joined the race due to FOMO on a quick and easy buck.
Meme-stock craze: WallStreetBets and their army of day traders took the market by storm, triggering squeezes on heavily shorted stocks like GameStop (GME), AMC (AMC) and Bed Bath & Beyond (BBBY). The group would have even put Melvin Capital out of business (were it not for a $2.75B cash infusion from Citadel and Point72). The r/wallstreetbets subreddit ended up creating a “swarm trading” strategy onto itself and many are still grumbling about Robinhood (HOOD) restricting trading as the fun was getting started.
February
Bowing out: Jeff Bezos said he would step aside, but would remain engaged at Amazon (AMZN) as executive chairman. Andy Jassy, the head of the company’s cloud division, later took up the helm of the e-commerce giant, with Bezos focusing on space company Blue Origin (BORGN) and philanthropic ventures. Jassy is an Amazon veteran (he’s been with Bezos since 1997) and was the architect of Amazon Web Services, which is how Amazon makes most of its money.
Cold snap: A deep freeze enveloping large swathes of the U.S. tested Texas’s highly decentralized electricity model. With power plants lacking an incentive to build reserve capacity (they are rather paid for the energy that they sell), wholesale prices for electricity on the state grid reached the price cap of $9,000 per megawatt hour (the average price is $25). More than a million barrels a day of oil and 10B cubic feet of gas production also went offline, while the National Guard mobilized to get the elderly into warming shelters.
Tesla buys Bitcoin: The crypto surged past $42K after Tesla (TSLA) disclosed a $1.5B investment and said it would begin accepting Bitcoin (BTC-USD) for payment “in the near future.” The outlay would give Tesla liquidity in the cryptocurrency once it started accepting payments and followed many positive comments by Elon Musk on the cryptocurrency. Less than two months later, the automaker discontinued the program, with Musk pointing to Bitcoin’s energy usage and raising quite a few eyebrows in the industry.
Global semiconductor shortage: General Motors (GM) became the largest automaker to warn about a chip shortage, saying the semiconductor crunch could cut its earnings by $1.5B-$2B in 2021. It was not alone. Many companies across multiple industries flagged the problem, such as AMD (AMD) and Qualcomm (QCOM), which sell chips to most of the top electronics firms, or Sony (SONY), which blamed the shortage for why it’s so hard to get a PS5. The COVID-19 pandemic triggered a surge in demand for PCs and other electronics as remote work and online learning became the new normal, and demand still remains at record highs.
March
Crypto art: Auction house Christie’s sold Everydays – The First 5000 Days for $69.3M, far eclipsing anything that has been bought in the non-fungible token (NFT) industry. The JPEG was a mosaic of every image that artist Mike Winkelmann, who goes by the name Beeple, has made since 2013. Earlier in the month, Jack Dorsey jumped on the NFT bandwagon, selling his first ever tweet from March 2006.
The American Rescue Plan: Congress gave the final green light to President Biden’s $1.9T economic stimulus plan, clearing the way for one of the largest relief packages in U.S. history. It was hailed as a centerpiece of Biden’s first 100 days, and included $1,400 payments for most Americans, expanded unemployment insurance, funding for schools and public health, and state and local government aid. The legislation also featured a per-child cash payment of at least $3,000 for one year, an expansion of “Obamacare” subsidies for two years, as well as aid for restaurants, agriculture and small businesses.
Stuck in Suez: After six long days, tugs and diggers were finally able to dislodge the Ever Given, a massive container ship that got stuck in the Suez Canal after losing the ability to steer amid high winds and a dust storm. About 12% of global trade and roughly 30% of the world’s shipping container volume transit through the Suez Canal, making it one of the world’s most important waterways. A rough estimate showed the blockage cost about $400M an hour, and further weighed on supply chains that were strained during the pandemic.
Archegos implosion: The high-profile hedge fund defaulted on margin calls from several global investment banks, including Credit Suisse, Nomura, Morgan Stanley and Goldman Sachs. How did it happen? The fund had large, concentrated positions in ViacomCBS (VIAC), Baidu (BIDU) and other companies, but its use of total return swaps helped hide its high exposure from the banks. The derivative contracts exposed the firm to severe losses when the trades went sour, with fund manager Bill Hwang reportedly losing $8B in just ten days.
April
J&J scare: The CDC recommended that the use of the Johnson & Johnson’s (JNJ) COVID-19 inoculation be paused “out of an abundance of caution” following reports of six cases of rare brain blood clots in women aged between 18 to 48 (one even died and another is in critical condition). At the time, that was out of some 7.8M people who have received the jab across U.S. However, the pause only lasted for 10 days, with an investigation finding that the syndrome involving severe blood clots and low platelets was extremely rare.
Timberrr! Commodity prices caused some panic, with one in particular going on a major rip: Wood. Lumber futures (LB1:COM), which are used by a variety of traders to lock into prices and hedge against future risks, saw contracts soar nearly 100% YTD, trading as high as $1,686 per thousand board feet. That had knock-on effects across the economy, like the housing market, with prices surging for real estate nationwide.
Worker shortage: Job openings soared to a record 9.3M in April as the economy reopened, but 3.5M Americans were still on weekly jobless benefits and more than 9M remained unemployed. While the numbers sounded somewhat contradictory due to the ways they are collected and measured, they mean the U.S. experienced high unemployment at the same time as a labor shortage. The hiring scarcity also took a partisan tilt, with Republicans mainly pointing to programs such as enhanced unemployment benefits, while Democrats flagged items like childcare responsibilities, lingering COVID-19 worries and the need to raise wages.
Major privacy change: Fresh updates came to iPhones worldwide as Apple (NASDAQ:AAPL) began rolling out iOS 14.5, its new operating software that includes loads of new features. The one that grabbed headlines was Apple’s new privacy change, called App Tracking Transparency, which centers around access to unique iPhone IDs. Users were asked by each app if they are okay with being tracked across other apps and websites, bringing seismic changes to the nearly $100B mobile advertising market.
May
Pipeline disruption: The U.S. government declared a state of emergency to keep fuel supply lines open following the shutdown of Colonial Pipeline. The 5,500-mile conduit, whose owners include Shell Midstream Partners (SHLX) and others, carries 2.5M barrels a day to the East Coast, or 45% of its supply of diesel, gasoline and jet fuel. Colonial ended up paying $4.4M in Bitcoin to hackers (before recovering $2.3M), but the hacks didn’t stop there. Brazilian meatpacker JBS (OTCQX:JBSAY) was hit with a major breach, as well as U.S. IT firm Kaseya.
Masks off: Hopes were high that we’d move on from the pandemic, before learning that COVID is sticking around for the foreseeable future. “Anyone who is fully vaccinated can participate in indoor or outdoor activities, large or small, without wearing a mask or physical distancing,” CDC Director Rochelle Walensky declared. “If you are fully vaccinated, you can start doing the things that you had stopped doing because of the pandemic. We have all longed for this moment when we can get back to some sense of normalcy.” The guidance was reversed two months later as Delta was surging across the country.
Who let the Doge out? Another crypto craze took the market by the storm as a parabolic rally for altcoins (cryptos other than Bitcoin) led the value of all digital tokens past $2.3T. Dogecoin (DOGE-USD), a crypto that started as a joke, changed hands at as high as 74 cents, or up 12,000% since the beginning of 2021. Things didn’t last long as Elon Musk, who had been pumping Doge, went on SNL as “The Dogefather” and called the crypto a “hustle.”
Travel comeback: More than 37M Americans hit the road or the air over Memorial Day weekend, up 60% from the previous year. Security lines were stretched at the busiest U.S. airports, and people packed into cars despite skyrocketing gas prices across the country. “It is night and day, compared to 2020,” noted Henry Harteveldt, an airline industry analyst at Atmosphere Research Group. “Hotels are booked full, companies like Airbnb (ABNB) and Vrbo (EXPE) say they are sold out in many communities, and rental cars are all but impossible to find.”
June
Global tax deal: G7 nations reached an agreement on a global minimum tax after years of discussions at the OECD. The deal would require that companies pay at least a 15% tax on income, regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates. The rules would apply to multinationals that have a profit margin of at least 10%, while governments would share the right to tax 20% of profits above that threshold.
Mandatory vaccination: “Vaccine mandates” entered everyday vocabulary following updated guidance from the U.S. Equal Employment Opportunity Commission. It said employers can impose mandatory vaccination requirements to “all employees physically entering the workplace,” with only a few exceptions permitted under law, such as medical reasons, the workforce is unionized, or if taking it is against a “sincerely held” religious belief. Businesses must also comply with the reasonable accommodation provisions of the ADA and Title VII of the Civil Rights Act of 1964 and other EEO considerations.
Amazon rolls a fatty: Cannabis legalization efforts continued to expand across the U.S. and the movement won another big backer: Amazon (AMZN). The nation’s second-largest employer said it would no longer screen its workers for the drug (except for positions subject to regulation by the U.S. Department of Transportation) and will drop weed-testing requirements for recruitment. Senate Majority Leader Chuck Schumer (D-N.Y.) later introduced a draft of legislation that would legalize marijuana on the federal level, which was meant to spur discussion for a formal introduction of a bill and comprehensive reform.
Sticker shock: A higher-than-expected inflation print in the U.S. showed prices soaring by 5% compared with a year ago, marking the biggest increase since the Great Recession. Fed Chair Jerome Powell still stood by his “transitory inflation” thesis, pointing to supply chain disruptions amid “extremely strong demand for labor, goods and service.” However, the central bank brought forward the time frame on when it would next raise rates, with the so-called dot plot pointing to two hikes in 2023 (that came after Powell said in March that he saw no increases until at least 2024).
July
Billionaire space race! Richard Branson, the 70-year-old founder of Virgin Galactic (SPCE), rode the VSS Unity into the lower reaches of space following a 17-year quest towards suborbital space tourism. The developments sent shares of Virgin Galactic to the ionosphere, with the stock soaring 10% to $54. Jeff Bezos’ turn came a week later aboard Blue Origin’s (BORGN) New Shepard rocket. The two billionaires also sparred over definitions, with Blue Origin emphasizing that it flew above the Karman Line, a boundary 62 miles above sea level that’s commonly referred to as the beginning of space.
Got my stimmy: The latest round of stimulus checks arrived, but you had to be a parent to get one. Your kids also had to be under 18, with $300 per month for a child below age 6 and $250 for those aged between 6 and 17. The expanded child tax credit was aimed at cutting the child poverty rate, with Uncle Sam shelling out $105B for the program. However, as it stands right now, the child tax credit payments won’t continue into next year.
OPEC+ ends standoff: OPEC and its allies reached a deal to raise crude production in response to “oil demand showing clear signs of improvement and OECD stocks falling.” The agreement would take effect from August, with the group pumping out an extra 400K barrels a day through the end of 2022 and restoring all the cuts they made at the start of the COVID-19 pandemic. The pact also resolved an internal dispute that had tested the unity of the alliance (the UAE rejected proposed production plans, saying its current baseline was too low).
Democratizing finance for all: In one of the year’s most highly anticipated listings, Robinhood (HOOD) priced its IPO at $38 per share, on the low end of a marketed range. It also reserved up to 35% of shares for users of its app – which could purchase the stock at the IPO price via a new product called IPO Access – though things ended up souring, and it now trades near $17. In other IPO news, don’t forget about DiDi’s (DIDI) big flop and China’s sprawling crackdown.
August
No more lockdowns: Dr. Anthony Fauci said the U.S. will not lock down again to curb COVID-19, but “things are going to get worse” as Delta fueled a surge in cases. “I think we have enough of the percentage of [vaccinated] people in the country – not enough to crush the outbreak – but I believe enough to not allow us to get into the situation we were in last winter.” As 2021 winds to a close, deaths from COVID-19 resulted in 435K over the course of the year, compared to 385K in 2020.
Plan for Afghanistan: Taliban fighters took over the presidential palace in Kabul after a stunning blitz across Afghanistan that saw them seize most of the country in just over a week. The lightning sweep comes after the U.S. spent nearly 2,500 American lives (and some 150K Afghan lives) trying to ensure the territory would not become a terrorist haven, while attempting to refashion the nation into a pro-Western democracy. Fearing sanctions, Western Union (WU) and MoneyGram International (MGI) halted payments into Afghanistan, while some looked at the economic impacts of the long-running conflict, which cost the U.S. taxpayer an estimated $2.26T.
Eviction friction: Ending protections for millions of Americans who have fallen behind on their rent, the U.S. Supreme Court dissolved the pandemic-related federal moratorium on residential evictions in a 6-3 vote. A coalition of landlords and real estate associations brought the case against the Biden administration, which had acknowledged that the legal odds of the ban were on shaky ground, but said it was worth pursuing as it would allow more time to distribute more than $45B in rental assistance. Disappointed by the latest Supreme Court decision, the White House urged states, local governments, landlords and cabinet agencies to “urgently act” to help stop evictions.
Storm warning: Hurricane Ida slammed into Louisiana as a Category 4 storm, lashing the coast with 150 mile-per-hour winds, torrential downpours and life-threatening storm surges. By nightfall, power was knocked out to the entire New Orleans metropolitan area, according to Entergy (ETR), with the failure of all eight transmission lines that deliver electricity to Louisiana’s largest city. The cost of the storm exceeded $65B and came ashore on the 16th anniversary of Katrina’s landfall, which left the region in shambles and killed more than 1,800 people.
September
Opioid settlement: U.S. Bankruptcy Judge Robert Drain approved a sweeping settlement for Purdue Pharma, the maker of OxyContin, hoping to resolve thousands of lawsuits from state and local governments, Native American tribes, unions and others alleging the company fueled the opioid epidemic. The plan reorganized the drugmaker into a new charity-oriented company with a board appointed by public officials that will funnel profits into government-led efforts to prevent and treat addiction. It would also set up a compensation fund that will pay some victims of drugs an expected $3,500 to $48,000 each.
Trillion-dollar coin: Ideas got creative as a U.S. debt ceiling deadline loomed in Washington. Tensions among party members over the amount of spending, as well as whether to tie the procedure to infrastructure or social programs and climate policy also created some theatrics. One of those ideas was a $1T platinum coin, which would be minted under commemorative clauses and deposited at the Federal Reserve. The asset swap would result in an extra $1T to cover a big portion of Washington’s bills, but Treasury Secretary Janet Yellen ruled it out.
China property crisis: Contagion fears surfaced as China property company Evergrande (OTCPK:EGRNF) risked a collapse. The company is not only one of China’s biggest property developers, but its most indebted, with the equivalent of more than $300B in total liabilities. A month later, Fitch became the first to label Evergrande’s overseas bonds as “in default” and China said it would take the loss in a market-orientated way, cueing up a massive restructuring and deep haircuts for investors.
Fed evolution: Jay Powell telegraphed a tapering announcement at the central bank’s next meeting, though the stock market finished the day in the black and the yield curve flattened. At the following meeting, the central bank said it would cut its monthly Treasury purchases by $10B and mortgage-backed securities by $5B (bringing an end to the program in mid-2022), but that wasn’t enough. Powell eventually unveiled a faster tapering to the Fed’s asset purchase program, shifting gears to tighter monetary policy, and retired the word “transitory” (he was also nominated for another four-year term at the Federal Reserve).
October
Global energy crisis: Energy prices continued to surge to fresh records as renewed fears stoked panic about the worst shortage in decades. India warned that it only had four days of coal reserves left, German power plants ran out of fuel and China unloaded an Australian coal shipment despite an import ban and icy relations. Supply was just not there as economies rebounded from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks added to the pressure (OPEC+ didn’t come to the rescue, but Vladimir Putin tried to, and the U.S. tapped the Strategic Petroleum Reserve).
Squid millions: Netflix (NFLX) said its megahit Squid Game could be worth nearly $900M, according to an internal document that measures “impact value,” which combines data like how often a show is watched by new customers, existing customers, its cost efficiency and impact on long-term viewership. The nine-episode horror-thriller rose sharply in the headlines since its debut on September 17, and ranked No. 1 in several countries, including the U.S. The South Korean show involves heavily indebted people who compete in children’s games for a chance to win big cash prizes, though the challenges come with fatal consequences.
TRUTH Social: Some predicted the move since he left office, but former President Donald Trump launched his own media network. The new business, called Trump Media & Technology Group (TMTG), will include a social media platform called “TRUTH Social,” as well as a subscription video-on-demand service (TMTG+) that features “non-woke” entertainment programming, news and podcasts. The company is going public via a SPAC merger with Miami-based Digital World Acquisition (DWAC), which surged from $10 all the way up to $175, before falling back to Earth.
Meet Meta: Facebook (FB) CEO Mark Zuckerberg used his keynote address at the Connect conference to unveil the social media giant’s new corporate identity: Meta. “Our mission remains the same,” he declared. “We’re still a company that designs technology around people, but now we have a new North Star. From now on, it’s going to be Metaverse first.” According to Zuckerberg, the Metaverse is an “embodied internet,” or the “next chapter of the internet,” where people can “interact in immersive, 3D and shared digital worlds.”
November
Santa’s early start: The Port of Los Angeles, one of the busiest ports in the country, began operating 24 hours a day and 7 days a week to ease cargo bottlenecks that led to shortages and higher consumer costs. While the neighboring Port of Long Beach, Calif., also started doing a 24/7 schedule the previous month, major ports in Europe and Asia have operated around the clock for years. The latest change was announced by the White House as it sought to alleviate supply chain issues ahead of the holidays, though the increase in capacity will require cooperation from major U.S. companies like Walmart (WMT), FedEx (FDX) and UPS (UPS).
Climate knockout or COPout? After two weeks of talks, nearly 200 countries struck an agreement to ramp up efforts to fight global warming. Supporters said the COP26 agreement in Scotland signaled new determination among the world’s governments to shift away from fossil fuels, though activists cautioned that the deal fell well short of the breakthrough needed to avert eventual climate catastrophe. They specifically pointed to the lack of enforcement mechanisms, relying only on good faith to follow the rules as best they can.
Time for a breakup: Unveiling one of the biggest changes in the industrial giant’s history, General Electric (GE) announced plans to split into three global public companies: Aviation, Healthcare and Renewable Energy and Power. Prompting the shakeup was a strong shift towards leaner cost structures and away from the idea that central management can never fully offset the downsides that conglomerates can bring. It’s particularly strong for industrial businesses, which are no longer the talk of the town, and have market caps that come nowhere close to their technology rivals.
Over the finish line: President Biden signed the $1T bipartisan infrastructure bill, which finally passed in Congress after months of negotiations. The five-year spending package will be financed by tapping unspent COVID relief aid, Medicare rebates and unemployment insurance halted by some states, as well as petroleum reserve sales and 5G spectrum auctions. $110B would be allocated for roads and bridges, $66B for rail, $55B for water and wastewater infrastructure and $39B for public transit. There was also money for ports, high-speed broadband internet, replacing lead water pipes and building a network of electric vehicle charging stations.
December
Smoke-free generation: In one of the toughest crackdowns on the tobacco industry, New Zealand announced plans to prevent young people from ever being able to buy cigarettes. The initiative would create a “smoke-free generation” by 2027, ensuring that anyone born after 2008 will not be able to purchase cigarettes or tobacco products in their lifetime. The level of nicotine in cigarettes available to older people will also be reduced by 2025, while the number of retailers able to sell cigarettes will be slashed from 2024 (from 8,000 to under 500).
Organized labor: A Starbucks (SBUX) store in Buffalo became the first location in the country to unionize after employees voted by a margin of 19 to 8 to join the Workers United Union. Analysts sized up what kind of tipping point could be in store as it was the first-ever labor foothold to hit Starbucks. Three more outlets in Buffalo are also heading towards union elections, as well as another store in Mesa, Arizona and two locations in the Boston-area.
Quarantine cut: The CDC updated recommendations for COVID-19 control, shortening isolation restrictions from 10 to five days for all Americans who test positive for the virus. That’s as long as they are asymptomatic, though they should still wear a mask around others for a further five days. Meanwhile, individuals who have received their booster shot “do not need to quarantine following an exposure, but should wear a mask for 10 days after the exposure.” The CDC said its guidance was in line with the growing evidence suggesting that people infected with COVID-19 are most infectious 1–2 days before and 2–3 days after the onset of symptoms.
BBB: President Biden was dealt a severe blow to his economic agenda after West Virginia Senator Joe Manchin outright rejected the nearly $2T Build Back Better Plan. Negotiations had been underway for much of the past six months, but the latest disagreement means the bill is likely doomed unless his demands are met for a smaller, less sweeping package. Manchin has said “budget gimmicks hide the true cost” and it would temporarily fund programs that Democrats intend to later make permanent, but expect more to come in 2022.
Today’s Economic Calendar
8:30 Initial Jobless Claims
9:45 Chicago PMI
10:30 EIA Natural Gas Inventory
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices
4:30 PM Fed Balance Sheet
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Good morning. Happy Wednesday.
The Asian/Pacific markets were mixed. Australia, Thailand and the Philippines did well; China, Hong Kong and South Korea were weak. Europe, Africa and the Middle East are mixed. The UK, Turkey, South Africa and Hungary are up; Germany, Russia and Saudi Arabia are down. Futures in the States point towards a flat open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is unchanged. Oil and cooper are down. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
S&P takes the trophy
Stay tuned for the final two Wall Street Breakfasts of the year! Tomorrow’s edition will feature top stories and the biggest market movers of 2021, while Friday’s WSB will cover market predictions for 2022.
A rally that propelled markets over the past few days took a breather on Tuesday, but with only three sessions left in 2021, stocks are still poised to close out a strong year. The S&P 500 (SP500) is up 27.4% YTD, and if an outsized rally ensues, it could possibly top 2019’s advance of 28.9% for its best year since 2013 (when it gained 32.4%). At the current rate, S&P’s return would also come out ahead of the tech-heavy Nasdaq Composite (COMP.IND), which is up 23.1% for the year.
Quote: “All the stay-at-home, play-at-home, work-from-home stocks were DOA in 2021, like the pandemic didn’t exist anymore,” said Jake Dollarhide, CEO of Longbow Asset Management. “The last five years, every time it looked like there would be a rotation out of tech, everybody bought the dip – 2021 will go down as the year that investors did not buy the dip in tech.”
Inflation scares also saw investors rotate away from high-multiple tech stocks and into sectors that hold up better in a rising rate environment. Those include financials, energy and consumer goods, as well as industrials and real estate. While smaller-cap tech stocks got hammered – along with small-caps in general – big growth players found their footing and kept the S&P 500 and Nasdaq powering higher (the Dow Jones Industrial Average (DJI) is also up 20.4% in 2021). In fact, mega-cap companies like Amazon (AMZN), Alphabet (GOOG, GOOGL), Apple (AAPL), Meta (FB), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) make up 27% of the S&P 500 and are also the largest members of the Nasdaq.
No day off: Traders might be surprised they won’t be getting vacation time for New Year’s this year due to an obscure regulation called NYSE Rule 7.2. The law stipulates that the exchange will be closed either Friday, or the following Monday, if a holiday falls on a weekend, unless “unusual business conditions exist, such as the ending of a monthly or yearly accounting period.” It’s a pretty rare occurrence, with Rule 7.2 making its last appearance a decade ago, when New Year’s Day fell on a Saturday in 2011.
Musk unloads
In the first week of November, Elon Musk polled 68M of his followers on Twitter, asking if he should sell 10% of his stake in Tesla (NASDAQ:TSLA). While they voted yes, a major portion of the sales that followed were part of a “rule 10b5-1” trading plan that Musk adopted the previous month. Under 10b5-1 rules, corporate brass can trade their own equity as part of a pre-announced portfolio management plan, but must release details of when and how to protect themselves from accusations of insider trading.
Market movement: Tesla shares lost about a quarter of their value following the Twitter poll. The stock has since rebounded from a brief fall under $900 on Dec. 20, but is still below the record closing high of $1,229.91 seen last month. In premarket trade, TSLA is up 0.5% to $1,093.50, with a market cap of just over $1T.
“This rule 10b5-1 trading plan was completed on December 28, 2021,” Tesla (TSLA) said in SEC filings late on Tuesday. The latest option exercise on 1.55M shares brings the total of all exercised options to 22.8M shares, which were due to expire in August 2022. Musk also sold 934,090 shares for $1.02B to pay for associated taxes, with combined share sales of 15.8M over the past few weeks that were worth more than $16B.
Musk highlights from 2021: Tesla is on track to increase deliveries by 80% over the previous year and has now made roughly two-thirds of all the electric cars in the U.S. It also kicked off 2021 with its first full year of profit, thanks in part to Chinese sales, and by Q3 it achieved an annual run rate of 1M EVs per year. Meanwhile, SpaceX (SPACE) conducted more launches than its nearest competitors, blasting the first all-civilian flight to orbit and taking NASA astronauts to the International Space Station. Starship – a rocket intended to take humans to the moon and Mars – also scored its first landing at Starbase in Boca Chica, Texas, while satellite broadband internet service Starlink (STRLK) launched over 1,800 satellites and began Beta testing. Don’t forget that Elon Musk topped Jeff Bezos as the richest man in the world, another reason to exercise options and stock sales to cover his growing tax bill.
Tough year
While U.S. stocks are coming to the end of 2021 on a high note, Cathie Wood is missing out on the rally. Her flagship ARK Innovation ETF (ARKK) is down 22% this year and is set for its worst annual performance since its inception in October 2014. It comes in stark contrast to last year’s rally of almost 150% as she continues to reshuffle her ETFs (almost daily) to combat the latest market headwinds.
Commentary: “Everyone is talking about the Santa rally powering markets, but meanwhile ARKK is still going lower,” said Mark Taylor, sales trader at Mirabaud. “Cathie Wood remains firmly in the Grinch camp, and the outflows are starting to show.”
At the start of the year, Wood forecast a five-year compounded annual growth rate of 20%, but things didn’t quite turn out that way. With gains slowly sliding away, the aggressive active stock picker is doubling down on her “disruptive innovation” strategies, predicting that ARKK could now deliver a five-year compounded annual growth rate of up to 40%. The kicker came on Monday, when her team sold a large portion of their holdings – like Palantir (PLTR) and Robinhood (HOOD) – for “purposes of raising cash for the 2021 annual ETF distribution.”
Go big or go home? While it could be a one-off year, her methods could prove risky if she doesn’t diversify to other areas and sectors. Wood usually starts by figuring out the total addressable market of a “disruptive” technology, such as artificial intelligence, crypto, DNA sequencing, energy storage and robotics, and then looks for companies that can benefit from the fast-growing area. However, when prices begin frothing for companies that are making little or no profit (i.e. Spotify (SPOT), Teladoc (TDOC) and Twilio (TWLO)), or P/E ratios are off the charts (i.e. Block (SQ), Roku (ROKU) and Tesla (TSLA)), the market may begin questioning their valuations.
Talent wars
Apple (NASDAQ:AAPL) is issuing unusual and significant stock bonuses worth $50,000 to $180,000 in an effort to stave off defections to rivals like Meta Platforms (NASDAQ:FB). That’s according to a report from Bloomberg, which said the perk was given to engineers in silicon design, hardware, and the select software and operations group. Apple’s out-of-cycle bonuses consist of restricted stock units that vest over four years, providing an incentive to stay on at the iPhone maker.
Snapshot: The tech giant is involved in a battle for talent, particularly in augmented and virtual reality. Meta has hired 100 Apple engineers in recent months, while the latter has taken some of Meta’s employees as well. Both companies are poised to compete with each other, especially in AR and VR, as Apple gets set to launch its headset sometime in 2022. Shares of Meta already surged Monday as its Oculus virtual reality was a top gift over the holidays.
Talent drains were previously reported in other areas of Apple’s operations like its secretive self-driving car team. The Apple Car project was said to lose top-tier executives and employees earlier this year, while it also needs to secure enough engineers for next-generation devices and future versions of the iPhone. Another area that has generated a lot of controversy is bringing back employees to campus, and flexible work policies could go the extra mile in having workers jump ship.
Milestone watch: While it has proved elusive in recent days, Apple’s $3T market cap record is within reach and could happen before the year’s end.
Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $24B, 2-Year FRN Auction
1:00 PM Results of $56B, 7-Year Note Auction
What else is happening…
NYC schools to ramp up testing to limit classroom closures – NYT.
Moderna (NASDAQ:MRNA) sheds half of its market cap in less than five months.
Quidel’s (NASDAQ:QDEL) COVID-19 antigen tests detect Omicron variant.
Bad weather and COVID… Delta (NYSE:DAL), Alaska (NYSE:ALK) cancel more flights.
Bitcoin (BTC-USD) selloff weighs on shares of Coinbase (NASDAQ:COIN).
Marathon Digital (NASDAQ:MARA) to buy additional 78,000 Bitcoin miners.
China crackdown: Ant Group (NYSE:BABA) exits mutual aid platform Xianghubao.
Ford (NYSE:F) market cap tops GM (NYSE:GM) for first time in more than five years.
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Good morning. Happy Tuesday.
The Asian/Pacific markets mostly did well. Japan, China, South Korea, India, Taiwan and Singapore led. Europe, Africa and the Middle East are mostly up. Denmark, Poland, France, Germany, Russia, South Africa, Switzerland, Spain, the Netherlands, Italy, Israel and Saudi Arabia are leading. Futures in the States point towards a positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil and cooper are up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Changing the rules
The Centers for Disease Control and Prevention is updating recommendations for COVID-19 control, shortening isolation restrictions from 10 to five days for all Americans who test positive for the virus. That’s as long as they are asymptomatic, though they should still wear a mask around others for a further five days. The newly-issued guidance is in line with the growing evidence suggesting that people infected with COVID-19 are most infectious 1–2 days before and 2–3 days after the onset of symptoms.
In addition: The CDC has endorsed a shorter quarantine period for the close contacts exposed to the virus. “For people who are unvaccinated or are more than six months out from their second mRNA dose [from Pfizer (PFE) or Moderna (MRNA)] – or more than 2 months after the J&J (JNJ) vaccine – and not yet boosted, CDC now recommends quarantine for 5 days followed by strict mask use for an additional 5 days. Individuals who have received their booster shot do not need to quarantine following an exposure, but should wear a mask for 10 days after the exposure.”
The new rules come as national case rates head towards the peak of last winter, surging 55% to over 205,000 new daily average infections over the last seven days. The caseload and restrictions are causing huge disruptions to the aviation and hospitality industries, in particular, triggering new pandemic-management ideas. More than 1,000 flights were canceled on Monday, according to Flightaware.com, adding to the 2,300 which were canceled over the Christmas weekend.
Quote: “When you have a rapidly spreading infection that’s going to have tens of millions of Americans infected in the next couple of months, 10 days is enormously disruptive,” noted Dr. Ashish Jha, Dean at the Brown University School of Public Health. “This policy is safe, it doesn’t put people at risk. We don’t think most people are contagious after five days.”
Booster mandates
In the wake of the rapidly spreading Omicron variant, Goldman Sachs (GS) is requiring all staff in its U.S. offices to get vaccination booster shots. The new rules will mean that any employee going into work, as well as clients and visitors, must get a booster by Feb. 1 (if they’re eligible for the injections at that date). In addition, the bank plans to double mandatory testing to twice weekly, beginning on Jan. 10.
Workplace philosophy: Since the summer, Goldman has been one of Wall Street’s biggest supporters of returning employees to the office. It required vaccines for all staff and visitors entering its offices in the U.S., while workers received COVID tests onsite once a week. The company also required mask-wearing in all common areas like lobbies, hallways, gyms and cafeterias, except when seated and eating or drinking.
One of the loudest critics of remote work has been Goldman CEO David Solomon, who called it “an aberration that we’re going to correct as quickly as possible” and said it was “not the new normal.”
Elsewhere on Wall Street: Citigroup (C) has told staffers in NYC that they could work from home again through the holidays, while Wells Fargo (WFC) recently postponed its “return to the office” plans indefinitely. Jefferies also asked employees to work remotely and Morgan Stanley (MS) told its workforce to limit large in-person meetings and to wear face coverings when not at their desks. JPMorgan (JPM), another staunch advocate of the office, pulled back on those plans, announcing that staff could work from home for the last two weeks of December.
No vaccine, no flight?
After making a similar suggestion in September, White House chief medical advisor Dr. Anthony Fauci said on Monday that the federal government should consider requiring COVID-19 vaccines for domestic flights. “When you make vaccinations a requirement, that’s another incentive to get more people vaccinated,” he told MSNBC’s Morning Joe. “If you want to do that with domestic flights, I think that’s something that seriously should be considered.”
Response from the White House: When asked for comment, the administration referred to a statement President Biden made to ABC News last week. “It’s been considered, but the recommendation I’ve gotten so far is it’s not necessary, even with Omicron,” he told anchor David Muir.
Domestic passengers must currently wear masks to board planes and keep them on for the duration of the flight except when eating and drinking. International travelers must also wear a mask, but are also required to show proof of vaccination and a negative COVID test to board a U.S.-bound flight.
Market movement: Despite gains in the broader indices, U.S. travel stocks retreated on Monday, including American Airlines (AAL), United (UAL) and Delta (DAL). Cruise ship operators also slipped into the red, including Carnival (CCL), Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH). The CDC is additionally investigating 68 cruise ships following reports of COVID-19 cases on board over the Christmas weekend.
The transcript
In a meeting with some of the nation’s governors, President Biden pledged to support states struggling with the Omicron variant, but acknowledged that they will need to take the lead in controlling the pandemic. Arkansas Governor Asa Hutchinson, who is chair of the National Governors Association, was also on the call, and the two discussed COVID testing as people struggle to find at-home test kits on drugstore shelves and experience long lines at testing centers across the nation.
Excerpts: “Your task force has been responsive and has kept us informed every step of the way. One word of concern or encouragement for your team is that as the – as you look towards federal solutions that will help alleviate the challenge, make sure that we do not let federal solutions stand in the way of state solutions,” noted Hutchinson. “The production of 500M rapid tests that will be distributed by the federal government is great, but, obviously, that dries up the supply chain for the solutions that we might offer as governor.”
“Look, there is no federal solution. This gets solved at a state level,” Biden responded. “And then it ultimately gets down to where the rubber meets the road, and that’s where the patient is in need of help or preventing the need for help. And as I said last week, Omicron is a source of concern, but it should not be a source of panic. Last week, we took steps to bolster support for you with, number one, more capacity to get shots in arms, with more places, more vaccinators, more times for folks to get vaccinated or get a booster shot.”
“Seeing how tough it was for some folks to get a test this weekend shows that we have more work to do. We went from no over-the-counter tests in January to 46M in October, 100M in November and almost 200M in December. But it’s not enough, it’s clearly not enough. If we had known, we would have gone harder and quicker if we could have,” Biden continued. “My message to the governors is simple: If you need something, say something – and we – we’re going to have your back in any way we can.”
“Because of steps we have been taking to increase the number of authorized tests, we’re now able to purchase 500M at-home rapid tests to be sent to the American people for free when they request it. And we’re going to continue to use the Defense Production Act to produce as many tests as possible. And starting in two weeks, private insurance will reimburse you for the cost of at-home tests. We’re providing access to free tests for folks who don’t have insurance. But we have to do more. We have to do better, and we will.”
Coronavirus testing stocks: Quidel (NASDAQ:QDEL), Fulgent Genetics (NASDAQ:FLGT), Hologic (NASDAQ:HOLX), Abbott (NYSE:ABT), OraSure (NASDAQ:OSUR), Becton, Dickinson (NYSE:BDX), Cue Health (NASDAQ:HLTH), Lucira (NASDAQ:LHDX), Danaher (NYSE:DHR), PerkinElmer (NYSE:PKI), Fluidigm (NASDAQ:FLDM) and Quest Diagnostics (NYSE:DGX).
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Richmond Fed Mfg.
1:00 PM Results of $61B, 5-Year Note Auction
1:00 PM Money Supply
What else is happening…
COVID spike shuts Apple’s (NASDAQ:AAPL) NYC stores to shoppers.
Meta Platforms (NASDAQ:FB) surges on signs of strong Oculus holiday demand.
Starboard sends GoDaddy (NYSE:GDDY) soaring after building 6.5% stake.
Zoom (NASDAQ:ZM) buys assets from event production startup Liminal.
EV and traditional automakers plan 13 U.S. battery plants by 2025.
Fresh low… DiDi (NYSE:DIDI) blocks employees from selling shares – FT.
COVID pill approval dings Moderna (NASDAQ:MRNA) and Novavax (NASDAQ:NVAX).
Heat demand! U.S. natural gas rallies on forecasts for colder weather.
New York expands COVID-19 testing as cases continue to rise.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned up. India, Taiwan, Australia, Malaysia and the Philippines did well while Japan and South Korea were weak. Europe, Africa and the Middle East are mostly up. Denmark, the UAE, Russia, Finland, Switzerland, Spain, the Netherlands, Italy and Sweden are doing well. Several markets are closed. Futures in the States point towads a positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and cooper are down. Gold and silver are down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Is Santa in the house?
With momentum building before the holidays and the S&P 500 recording its 68th record close of 2021, traders are keeping their eyes on the chimney to see if the so-called Santa Claus rally will take shape this year. The seasonally bullish trend typically sees equities rise over the last five trading sessions of December and the first two trading days of January. Since 1928, the S&P 500 has been positive in that stretch 78.5% of the time, according to data from Bank of America. Futures movement: Dow +0.1%; S&P 500 +0.2%; Nasdaq +0.3%.
Bigger picture: This year, there are a lot of factors to contend with that are mostly dependent on the direction of Omicron (inflation fears, Fed tapering and coming rate hikes have done little to dampen the stock market rally). So far, investors appear to be relying on Omicron being milder than other variants, as well as any serious effects being mitigated by a rollout of booster shots. People with Omicron are also up to 70% less likely to require admission to a hospital than those with the Delta variant, according to a recent U.K. government study.
Some are still nervous about the rapidly spreading strain’s disruption on business activity, which has exacerbated a labor shortage just in time for the holidays. That could mean even if consumers remain willing to go out, businesses will have to close when too many employees are sick or get stuck in quarantine. That doesn’t appear to have deterred U.S. retail spending, with Mastercard SpendingPulse reporting an 8.5% Y/Y rise for the period spanning Nov. 1 to Dec 24, marking the biggest annual gain in 17 years.
Analyst commentary: “Everything seems to be serious but manageable. Anything that changes that, this could probably make a big impact,” said Luca Paolini, chief strategist at Pictet Asset Management. It’s also worth noting that market moves could be amplified during the holiday season due to a lack of liquidity. With many people taking off the final week of the year, the prices at which traders are willing to buy and sell may be higher or lower since there are fewer counterparties.
‘Spider-Man’ surpasses $1B
Many films at the box office have bombed since the pandemic (see West Side Story and The Matrix Resurrections as recent examples), but one movie has overturned that sentiment despite a fifth wave of COVID-19. Spider-Man: No Way Home reached $1.05B at the global box office over Christmas weekend, making it the first film to reach the benchmark since 2019. No Way Home was also the third-fastest film ever to cross $1B (in just 12 days) and did so without the benefit of its release in China.
Backdrop: No Way Home was another co-production between Sony (NYSE:SONY) and Disney (NYSE:DIS) after the two brokered a deal in 2015 for Spider-Man to appear in Marvel’s cinematic universe. The partnership also saw Marvel getting involved in Spider-Man’s solo projects, which were financed by Sony, and the agreement was renegotiated in 2019 to split production costs and box office receipts. Tom Holland, who plays the newest iteration of Peter Parker, has appeared in six Marvel Cinematic Universe films, including three solo features.
“The partnership between these two Hollywood entities is clearly one of great benefit to both,” said BoxOffice.com chief analyst Shawn Robbins.
Putting it in perspective: With just several days left in 2021, the North American box office has brought in $4.3B (with over 10% of that, or $467M, from Spider-Man: No Way Home). Before the pandemic, a typical year at the box office exceeded $11B.
Travel woes
Tens of thousands of holiday travelers had their plans upended over Christmas weekend as flight cancellations disrupted one of the busiest travel seasons of the year. A total of 957 Christmas Day flights, including domestic flights and those into or out of the country, were canceled, up from 690 on Christmas Eve. Another 1,318 flights were called off on Sunday, according to FlightAware.com, while cruise ships from Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL) had to ditch stops due to outbreaks on board.
Quote: “The nationwide spike in Omicron cases this week has had a direct impact on our flight crews and the people who run our operation,” said Maddie King, spokesperson at United Airlines (NASDAQ:UAL). “We are working hard to rebook as many people as possible and get them on their way for the holidays.”
Other carriers like Delta (NYSE:DAL) and JetBlue (NASDAQ:JBLU) also blamed staffing shortages, with “COVID-related sick calls” resulting in quarantines of pilots and crew. Delta even previously asked the CDC to halve 10-day quarantine recommendations for vaccinated staff, saying it “may significantly impact our workforce and operations.” Not all airlines were affected equally by the disruptions, with Southwest (NYSE:LUV) reporting no issues to its flight schedule on Saturday, though weather-related issues impacted the airline on Sunday.
Go deeper: “Lower travel, equaling lower economic activity in the U.S., equals lower WTI, the U.S. oil benchmark,” noted OANDA analyst Jeffrey Halley. Crude futures (CL1:COM) are down 1.3% to $72.85 a barrel on the news, with surging COVID-19 cases across the country. The average number of new U.S. coronavirus infections has risen 45% to 179,000 per day over the past week, with Omicron accounting for nearly three-quarters of the cases.
Scrapping limits
Over the years, China has gradually peeled back limits on foreign ownership in the domestic auto industry, but it’s now hitting the accelerator. Beginning Jan. 1, 2022, the country is pulling out all the stops to investment in the sector, allowing full foreign ownership of local passenger car manufacturing. That’s according to a release from the Ministry of Commerce and the National Development and Reform Commission, the nation’s top economic planning agency.
Snapshot: Since 2009, China has been the biggest in the world in terms of automotive manufacturing. In fact, annual automobile unit production in China accounted for over 30% of worldwide vehicle production, which exceeds that of the EU or that of the U.S. and Japan combined, according to database company Statista.
China’s “Big Four” domestic car manufacturers include SAIC Motor, Dongfeng (OTCPK:DNFGY), FAW and Chang’an. Other automakers include Geely (OTCPK:GELYY), BYD (OTCPK:BYDDY), Brilliance Automotive (OTCPK:BCAUY), Guangzhou (OTCPK:GNZUF) and Great Wall (OTCPK:GWLLY). There are also EV players like Nio (NYSE:NIO), XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI), while several multinationals have partnerships with domestic manufacturers.
Note: China still has 31 areas in which foreign investment is banned or restricted, including rare earths, nuclear power, telecom and news companies, and education institutions. In industries like medical organizations, foreign entities must form joint ventures with local partners, which usually have the majority stake.
Today’s Economic Calendar
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $56B, 2-Year Note Auction
What else is happening…
GlobalFoundries (NASDAQ:GFS) extends AMD (NASDAQ:AMD) wafer supply deal.
Low rates see leveraged finance deals hit record in 2021 – Dealogic.
Why cannabis investors need to pay attention to ancillary companies.
China proposes stricter rules for overseas listings, though no outright ban.
Colin Kaepernick SPAC deal (NYSE:MACC) with minority lender is said to collapse.
Cryptos brace for further adoption, price volatility next year – S&P Global.
FDA grants Roche (OTCQX:RHHBY) at-home COVID test Emergency Use Authorization.
MKM Partners announces top 2022 picks in eight subsectors – Sector Watch.
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