Omicron’s anxiety and what to watch out for this market week

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Thanksgiving week was going pretty well until markets were scared on Friday by the rise of a new variant of Covid in Africa, Omicron. There are concerns that existing vaccines and treatments may be less effective against this mutation. The first three trading days of the week reflected the continuing streak of better-than-expected economic data, with the Atlanta Fed’s estimate of fourth-quarter U.S. GDP growth increasing at an annualized rate of 8.6% . Although the real growth rate is probably in the mid range of the numbers, it would still be at a very strong pace.

While growth and tech stocks were down before the news broke, the news of the new variant is the main reason for stocks’ sharp drop on Friday. Value stocks and banks, which tend to be more economically sensitive, performed well ahead of the Omicron news. Additionally, airline-related shares fell more than 7% on Friday, while Stay At Home shares were higher.

Omicron appears to be more transmissible than the Delta variant, but little is known about the severity of the disease or how it works in a more heavily vaccinated population. According to Bloomberg News, Angelique Coetzee, president of the South African Medical Association, described Omicron’s symptoms as “different and so mild” compared to previous infections. While that may change as it is still early in infections, early indications regarding symptom severity and hospitalization rate are encouraging. Markets will be watching for any further information this week. If Omicron’s symptom severity and hospitalization rates remain low, markets should respond positively.

So far, high-frequency, non-traditional economic data does not reflect a change in behavior in the United States that would significantly alter the economic outlook. For example, there were five days last week with over 2 million people passing through TSA checkpoints. One would expect air travel to be an early indicator if people were to become uncomfortable again, but the Omicron news came after most of this data.

The upward trend in Covid infections in Europe was first reported as a risk in late October and continued last week.

While the United States has seen a significant decrease in the rate of Covid infections since the peak in September, the rate of change declined last week. The Thanksgiving holiday may have delayed some reports, so be careful with the data this week.

While the Omicron observation will steal the show from the November monthly jobs report, it should still be watched closely as an indicator of the labor market recovery. The non-farm payroll is expected to increase by 535,000 for November and the unemployment rate is expected to improve to 4.5%. The health of the labor market has implications for economic growth and the possible acceleration of the reduction in asset purchases by the Federal Reserve. There are numerous communications from Federal Reserve officials on the calendar, with President Powell speaking on Monday afternoon. In addition, Powell and Secretary of the Treasury Yellen met with the Senate on Tuesday and the House on Wednesday.

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