Telemus Weekly Market Review December 20th - December 24th, 2021
Looking Through Omicrom
This past week the Omicrom variant became the dominant strain of COVID-19 in the United States. The virus is feared given its greater rate of transmissibility along with the potential for those that are vaccinated and even boosted to be susceptible to symptoms. Thus far, it appears the severity of the strain is not as significant as previous iterations. Markets have yet to be rattled by this, as a jolly market this past week looked past this news. The S&P 500 rose +2.3% in the holiday shortened week with riskier segments of the market fairing best.
From an economic standpoint, there is something to be feared from the Omicrom variant. Not necessarily because it will lead to portions of the economy being shut down like the spring of 2020. Rather, the variant has arrived while rising prices and supply chain shortages have yet to crest. This could only further the rise in prices and tighten inventories. Given that COVID requires not just those that test positive to quarantine but those exposed to positive cases to as well (until they test negative), the impact on the functioning of the economy could be significant. Manufacturing lines could very well be short staffed, same with service businesses that don’t have enough employees to attend to customers. As such, the risk is that Omicrom will add to the inflationary trend and further clog supply chains. It may also have a negative impact on the travel and entertainment sectors as we’ve already seen Broadway shows cancelled, the NHL elected to take a recent holiday pause, and data from OpenTable indicates that restaurant traffic over the last few weeks has been on the decline. In our view, Omicrom will have an impact on business, it just may be a different experience from what transpired early in the pandemic.
The rise of Omicrom, in conjunction with tighter monetary policy out of Federal Reserve as it fights inflations, leaves investors caught between two different trades. Should Omicrom slow economic activity, owning some of the more predictable and economically insensitive technology and stay at home stocks has some appeal. Alternatively, the rising interest rate and inflationary trade would indicate wanting to own more economically cyclical stocks like basic materials, financial and industrial businesses. As such it’s hard to have the perfect playbook for your portfolio when you have competing forces.
We know from past spikes of COVID cases that they tend to ebb and flow in waves. Its highly likely the Omicrom wave will pass over time. Therefore, we advocate spending less time crafting the perfect playbook for the first quarter or first half of 2022 but focusing on longer term influences and opportunities. What excites us as we look ahead is the wider dispersion in prices and valuations we are seeing across the equity market. This leaves us optimistic around the opportunity associated with those pockets that offer more attractive long term value. There are too many unknowable variables to precisely predict how stocks will move in the next several months. However, we feel increasingly confident in the attractive opportunities that are available to investors that are willing to look out over a three-to-five year horizon.
On behalf of all of us at Telemus Capital, we want to wish our clients, friends, and prospective clients a Happy New Year.
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Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.
