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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.

Story continues

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.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

What to watch today

Economy

• 7:30 a.m. ET: Challenger job cuts, November (-71.7% in October)

• 8:30 a.m. ET: Initial jobless claims, week ended Nov. 27 (240,000 expected, 199,000 during prior week)

• 8:30 a.m. ET: Continuing claims, Nov. 20 (2.003 million expected, 2.049 million during prior week)

Earnings

Pre-market

• 6:55 a.m. ET: Dollar General (DG) is expected to report adjusted earnings of $2.01 per share on revenue of $8.47 billion

• 8:00 a.m. ET: Kroger (KR) is expected to report adjusted earnings of 67 cents per share on revenue of $31.18 billion

Post-market

• 4:05 p.m. ET: Ulta Beauty (ULTA) is expected to report adjusted earnings of $2.49 per share on revenue of $1.88 billion

Politics

• President Biden visits the National Institutes of Health today for a speech on Omicron and the next steps in his administration’s response to the variant. He’s promised to respond “not with shutdowns or lockdowns.” The president will also attend the National Christmas Tree Lighting.

• North Carolina is receiving a visit from two oft-speculated about 2024 or 2028 presidential hopefuls. Vice President Kamala Harris and Transportation Secretary Pete Buttigieg are appearing together in Charlotte to tout the new Bipartisan Infrastructure Law. Biden says he intends to seek a second term in 2024 but he’s already the oldest-serving president at the age of 79.

Top News

European stock markets slump as Omicron continues to dampen sentiment [Yahoo Finance UK]

Biden launching winter COVID-19 booster, testing campaign [AP]

Apple tells suppliers iPhone demand has slowed as holidays near [Bloomberg]

Grab's $40 billion Nasdaq debut to set tone for Southeast Asian tech listings [Reuters]

MLB owners lock out players, 1st work stoppage since 1995 [AP]

Yahoo Finance Highlights 

Capital One becomes first big bank to ditch overdraft fees

Elizabeth Holmes' cross-examination in fraud case is 'pretty devastating,' expert says

Jay Leno: Tesla is ‘probably 8-10 years ahead in battery technology’ compared to competitors

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