Thursday Morning Reads

Thursday Morning Reads









Omicron in America

The first Omicron case identified in the United States kicked selling into high gear on Wall Street yesterday. Stocks began the previous session sharply higher, but started to lose gains once Federal Reserve Chairman Jerome Powell reiterated that a faster Fed taper will be discussed at the next meeting.

The report of an Omicron variant case in California pushed stocks down sharply into the close. The S&P (SP500) has now seen its biggest two-day loss in 14 months, off a little more than 3%. Tech stocks have been particularly weak. This morning, S&P (SPX) (NYSEARCA:SPY), Dow (INDU) and Nasdaq 100 (NDX:IND) (NASDAQ:QQQ) futures point to a slightly higher open.

"In terms of developments about Omicron, we’re still in a waiting game for some concrete stats, but there was positive news early on from the World Health Organization’s chief scientist, who said that they think vaccines 'will still protect against severe disease as they have against the other variants,'" Deutsche Bank rates strategist Jim Reid says. "On the other hand, there was further negative news out of South Africa, as the country reported 8,561 infections over the previous day, with a positivity rate of 16.5%."

Growth takes it on the chin: The Nasdaq Composite (COMP.IND) has fared the worst among the major averages in this selloff, down 3.3% in the last two sessions. One reason for the extreme market reaction to the report of one case, when many were already assuming the variant would show up in the U.S. eventually, is the run stocks have been on this year. Stocks currently have very high valuations and investors may have been looking for a trigger for profit-taking.

When you compare the market reaction to that of other COVID waves and the Delta variant, what's different this time is that there was not a flight to Big Tech stocks, Florence Barjou, CIO at Lyxor Asset Management, said on Bloomberg. "This is really a growth-based selloff, which is why it looks a little bit like panic," Barjou says. "If we do get better news (on Omicron) we think it looks more like an entry point."

JPMorgan strategist Marko Kolanovic goes a step further and posits that Omicron could be the highly-transmissible yet milder variant that crowds out the more severe variants. "As such, we view the recent selloff in these segments as an opportunity to buy the dip in cyclicals, commodities and reopening themes, and to position for higher bond yields and steepening," he says.

Fed Factor: Also weighing on equities, especially growth stocks, is the presence of a newly-hawkish Fed chief. Rather than walking back comments about a faster tapering of asset purchases that hit Wall Street on Tuesday, Powell reiterated that it's time to discuss removing accommodation. "At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner," he said on Capitol Hill. "I expect that we will discuss that at our upcoming meeting."

When Omicron was first identified, markets pushed out the first Fed rate hike to December 2022, but have now returned to pricing in liftoff for June next year. Kinsale Trading says the Fed is getting ready to make a move that will be a "bearish gamechanger." (4 comments)


Apple’s iPhone issues

Apple (NASDAQ:AAPL) says it may not make up for missed holiday sales for the iPhone 13 caused by a lack of parts, Bloomberg reports. Supply chain issues have already forced the company to cut its 2021 iPhone 13 production target by 10M units.

Now it tells suppliers that demand for the phones has weakened, indicating that customers may just skip upgrading to the hard-to-find phones and not order next year when production increases, Bloomberg says, citing people familiar with the matter. (7 comments)

Snowflake surges

Beaten-down Snowflake (NYSE:SNOW) shares pop in extended-hours trading as the cloud-based data-management company reported better-than-expected third-quarter results and forecast stronger sales ahead.

Snowflake (SNOW) said that it lost 51 cents a share, on revenue of $334.4 million, for the quarter ending Oct. 31. During the same period a year ago, the company lost $1.01 a share on $159.6 million in sales. Wall Street analysts had forecast Snowflake (SNOW) to lose 61 cents a share on revenue of $306.1 million. It forecasts fourth-quarter product revenue of $345 million to $350 million, or nearly double that of the year-ago quarter. (25 comments)

Moderna booster in March?

A Moderna (NASDAQ:MRNA) executive said that the company could have a COVID-19 booster shot specific for the Omicron variant for regulators to review in March, Reuters reports.

President Stephen Hoge said that a shot that contains genes targeting the mutations found in the variant would be the best way to address any potential reduction in efficacy seen in current vaccines. (24 comments)

Trump SPAC looks to raise $1B

Trump-related SPAC Digital World Acquisition (NASDAQ:DWAC) rose in extended-hours trading on a report that it's working to raise up a $1B in a private investment in public equity or PIPE deal.

Trump Media & Technology Group is trying to raise as much as $1B in a PIPE transaction, according to a Reuters report. The additional funding would value the new entity at close to $3B. The original SPAC deal between Trump Media and DWAC valued Trump Media at $875M.

Trump Media is looking to secure a PIPE that would value DWAC close to its current share price of around $40/share, according to Reuters, which cited people familiar. Trump Media has asked investors to finalize commitments for PIPE investment by the middle of the month. (102 comments)

Robinhood at record low

Robinhood Markets (NASDAQ:HOOD) sank to its lowest level since going public four months ago, falling on heavy volume as the popular investing app’s IPO lockup fully expired.

Shares were apparently tanking due to the final and most significant in a series of lockup expirations that followed the company’s IPO. Some 569.7M shares bought at IPO by insiders and key investors like Salesforce (NYSE:CRM) became eligible for sale for the first time Wednesday. (13 comments)

Today's Markets

In Asia, Japan -0.65%. Hong Kong +0.55%. China -0.09%. India +1.35%.
In Europe, at midday, London -0.62%. Paris -0.71%. Frankfurt -1.01%.
Futures at 6:20, Dow +0.96%. S&P +0.77%. Nasdaq +0.45%. Crude +2.2% at $67.03. Gold -0.44% at $1775. Bitcoin -0.8% at $56589.
Ten-year Treasury Yield +5 bps to 1.439%

Today's Economic Calendar

Auto Sales
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Fed's Bostic: "Why Is Housing So Expensive?"
10:30 EIA Natural Gas Inventory
11:00 Fed's Quarles Speech
11:30 Fed's Bostic Speech
11:30 Fed's Daly Speech
11:30 Fed's Barkin Speech
4:30 PM Fed Balance Sheet

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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