Omicron is in the US. No surprise there. And so far, it seems no scarier than Delta, which had little to no effect on the US economy...and thus the bull market continued even during Delta, states Steve Reitmeister, editor of Reitmeister Total Return.
THIS is an important parallel to our current situation. If Omicron = Delta (in terms of economic impact) = Buy this dip for the rally to come. If Omicron > Delta (meaning negative economic impact) = Stocks will press even lower than where we stand now.
Granted I am an investor and not an immunologist (just in case you were unsure).
But as an investor we focus on patterns. And one pattern is to look past the media trying to scare the stuffing out of us to see the real economic impact. And right now, I would say odds are that Omicron is no worse than Delta, which is why we are not getting more defensive in the Reitmeister Total Return portfolio at this time.
Instead we are staying fully invested because the next bull run could emerge at any time and could quickly stampede back up to the old highs...or higher. (more on the year-end target further below).
In other news, we got a slate of strong economic reports this past week starting with ADP Employment showing 534,000 jobs added to the US economy. Note that anything above 150K = improvement in the unemployment rate that we absolutely did see come to life on Friday with a drop from 4.6% to 4.2%.
Note that economists like to say that 4% is the natural state of full employment. Meaning you never get to zero as some people will always be in flux between jobs. So this progression to only 4.2% unemployment is a key sign of economic improvement from the 14% unemployment rate we had at the darkest hour of the Covid crisis in 2020.
Also good to note that ISM Manufacturing ratcheted up from 60.8 to 61.1. That includes a New Orders reading of 61.5 pointing to more good times ahead.
Lastly on the economic front was ISM Services at a shockingly good 69.1, which went hand in hand with a 69.7 for New Orders. Also showing signs of health was the increase in the Employment Index, which went from a meager 51.6 to 56.5.
Yes, this reading has been lagging the other services indicators for the past year and a half. But the fact that is heating up now bodes well for what is on the mind of corporate executives.
Meaning, you ONLY hire if you believe that the additional cost will be surpassed by additional revenues to make it a profitable decision. So, in a way, it is a strong forward-looking indicator that businesses hiring more = expectation of greater profit growth ahead. That is always a good catalyst for stock price growth as well.
Now let’s switch over to price action as stocks did close below the 50-day moving average (4,547) to end last week. Once again that move was rejected yesterday (closing at 4,591.67). Helping matters was Dr. Fauci saying that the early indications are that Omicron symptoms appear mild.
That fits in with the current thesis that Omicron is not worse than Delta and thus likely no real economic damage and thus soon enough stocks should be heading back higher once again.
Perhaps we have seen the lows already. Or perhaps we need one more good rush down to the 100-day moving average at 4,493 to shake loose any complacency leading to a nice capitulation rally.
All in all, I strongly believe we are closer to the near-term bottom than the top and thus believe we should stay fully invested expecting stocks to bounce higher. And yes, it is quite likely that we get a Santa Claus rally that takes us up to the previous high of 4,743 or higher.
Heck, I will actually go on record now and say that we will touch 4,800 before the year is out. And if I am wrong, then likely that will occur plenty early in 2022 as well as making it to a more significant mark of 5,000.
Learn more about Steve Reitmeister at StockNews.com.