Stocks headed lower Friday and capping a rough week as stocks reacted to the spread of the omicron variant, hawkish remarks from several Federal Reserve officials, earnings reports and some economic news.
Reactions to earnings reported Thursday afternoon and Friday morning were mixed. Marvell (MRVL) and Smartsheet (SMAR) rallied on better-than-expected earnings and upside fourth-quarter guidance. The highlight from Marvell was its ability to sidestep global supply chain disruptions while showing strength across the board. Meanwhile, Smartsheet boasted a 46% year-over-year increase in its subscription revenue.
Meanwhile, DocuSign (DOCU) and Ollie’s Bargain Outlet (OLLI) tanked Friday in reaction to poor guidance. DocuSign took a 42% plunge Friday, with the primary lowlight being DocuSign CEO’s remarks that “after six quarters of accelerated growth, we saw customers return to more normalized buying patterns.” Meanwhile, Ollie’s report was riddled with supply chain woes with the company attributing sales that were below expectations and its shrinking margins to supply-chain-related issues.
Omicron
In the first full week of global knowledge about the Omicron variant, stocks turned bearish. This sell-off was helped early in the week by Moderna's (MRNA) CEO who suggested that due to distinctions of the Omicron variant, that a whole new vaccine may be needed.
Now, Moderna is in the business of selling vaccines, so that should be viewed as a hasty and clouded judgment made as there is still a lot of data needed in order to make that decision.
In fact, the earliest data (which, keep in mind, is early, so take it with a grain of salt) suggests that while it is a more transmissible virus, that it might actually be less deadly. If this proves to be true, then coronavirus would be following, according to strategists Marko Kolanovic and Bram Kaplan, the observed evolution of a virus, which is getting more transmissible but less deadly.
Because of this, the JPMorgan strategists said to ignore the noise and buy the dip, as the omicron virus could signal the end of the global pandemic.
Who knows, if data suggests that this is the case, perhaps the governments of the world will start flying infected individuals to other countries for a controlled-yet-infectious play-date… you know, like our parents did with the chickenpox when we were kids? I'll take my next stimmy in Bitcoin and a trip to the Caribbean, Joe!
Economic Recap
The two highlight economic events this week were the Consumer Confidence report and the Employment Situation Report, both of which were for the month of November.
The Consumer Confidence report fell more than expected when it was released Tuesday morning. Confidence fell to a reading of 109.5 following October’s downwardly revised reading of 111.0. This comprised of a decline to both the Present Situation Index and the Expectations Index. While short-term growth prospects increased, job and income prospects decreased primarily due to “rising prices- and, to a lesser degree, - the Delta variant.”
One thing to keep in mind about this report is that it doesn’t include any sentiment changes due to the recently discovered Omicron variant. This means that consumers got more cautious and pessimistic despite cases mostly plateauing during November. With this in mind, it may be fair to assume that consumers will err on the side of caution going forward.
Meanwhile, the November Employment Situation Report came in worse-than-expected.
Nonfarm payrolls rose by 210,000 jobs. This was against estimates for a gain of 525,000 jobs and represented a sharp decline from October’s addition of 546,000 jobs. Meanwhile, Nonfarm Private Payrolls added 235,000 jobs in November. This was far-off estimates for 500,000 jobs added and its October growth of 628,000 jobs added.
This report was all over the place, as the unemployment rate dipped to 4.2% and the labor force participation rate edged higher to 61.8%. Additionally, the Leisure and Hospitality sector, which has been plagued with staffing issues, added just 23,000 jobs in November following October’s increase of 170,000 jobs. Leisure and Hospitality jobs are up 2.4 million so far in 2021 but remain a massive 1.3 million off of February 2020 levels.
All told, stocks declined across the board this week. The S&P 500 declined 1.22%, while the Dow outperformed with a lesser drop of 0.91%. Meanwhile, the Russell 2000 fell the hardest, losing 4.27% and the Nasdaq lost 2.62%.
