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Thursday, December 2, 2021
‘The economic impact of COVID seems to be diminishing’
The Omicron variant of COVID-19 made its first domestic appearance on Wednesday, with one recorded case, a person who had traveled to South Africa and mildly symptomatic, being found in California. The news was enough to send stocks into a tailspin — again — and stoke new fears about efforts to contain the virus’ spread (i.e. mandates, restrictions and, perchance, more lockdowns).
“What a difference a week makes. A week ago stocks were at all-time highs and the economy was strong. Now all we have are uncertainties and questions,” explained LPL Financial Chief Market Strategist Ryan Detrick.
“As of now we’re optimistic that stocks will sidestep the new variant worries, but we recommend investors buckle up their seatbelts, as the end of 2021 could be a bumpy one.”
Since the new mutation made its inauspicious debut, the market has recorded more days in the red than otherwise, even though economic data like November ADP private payrolls data continue to defy gravity.
“The mapping from the virus to the lockdown to the macro world has been diminishing,” S&P Global Ratings chief economist Paul Gruenwald told Yahoo Finance Live on Wednesday. “That doesn’t mean we can’t get a shock. Omicron is gonna be a new shock... the good news is the economic impact of COVID seems to be diminishing.”
Still, it can't be denied that growth remains firmly in an uptrend. And in the spirit of the season, the Morning Brief thinks it's a worthwhile exercise to point out the myriad ways in which the U.S. economy, despite all odds, is very much firing on all cylinders.
Jobs are more than plentiful. The ADP data showed private sector employment jumped by 534,000 last month, better than most Wall Street estimates, while the employment component of the ISM’s manufacturing gauge showed job creation is still on a tear. That sets the stage for Thursday’s jobless data, which last week set a 52-year trough, and Friday’s all-important jobs report.
Wages are still going up — which means consumers are still willing to spend, spend — and spend some more. COVID-19 has put a damper on consumer sentiment, but that mood isn’t being reflected in high-frequency data. In fact, it's making people more willing to ring up purchases on credit cards, as Yahoo Finance's personal finance chief Janna Herron wrote on Wednesday — and a point the Morning Brief also made recently. It also provides us with a reminder that the inflationary pressures we’re experiencing are (for lack of a better phrase) a high-class problem created via a combination of implacable demand from rising pay and pent-up spending from 2020’s COVID-19 lockdowns.
Fourth quarter growth is tracking higher after a Q3 letdown. With consumer spending robust and manufacturing and construction figures also surprising to the upside, ING Chief International Economist James Knightly is expecting a Q4 growth print of at least 6%. “Inflation is likely to record a similar reading, meaning the case for swifter Fed policy tightening is strong. Omicron permitting,” he wrote.
Oil is cratering. Whatever Omicron brings next, one critical element of soaring inflation — energy prices — has suddenly turned disinflationary with crude tumbling nearly $20 from a multiyear high set in October to under $65 per barrel. In fact, you could almost make the case that oil price action suggests crude is getting way oversold, as Yahoo Finance’s Brian Sozzi reported on Wednesday, citing a Goldman Sachs analysis. Yet another high-class problem to have.