Omicron, the Fed and the “inevitable bear market”

We have an unique opportunity to capitalize on fear that spreads across the capital markets.

Three factors are currently driving the market; Omicron, the Fed and the Senator Joe Manchin.

Omicron is causing infections to spike across dozens of US States, raising concerns of delayed travel and a general decline of consumer activity.

The Federal Reserve is preparing for the inevitable 2022 rate hikes and asset tapering, forcing investors to consider moving away from riskier assets. This can be seen in the crypto-markets where constant social media posts, calling for “Bitcoin $100k,” are instead replaced with the average crypto-investor begging for God to stop his favorite horsecoin from falling 10% a week.

And, finally, Senator Joe Manchin has declined to vote in favor of Biden’s “Build Back Better,” agenda, causing infrastructure-related stocks to tumble.

With the S&P 500 and the Dow Jones both off 5% from their all-time highs (Nasdaq down over 7%), is this the time to buy into stocks?

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The answer is in forward earnings.

We probably won’t see the impact that Omicron will have on company’s earnings, likely, until Q1 2022, but that hasn’t stopped the market from pricing in a lackluster start to the new year. Bullish investors will get a nice reward if earnings turn out positive for the coming few months, even as some industries will get crushed due to Omicron/Delta spikes.

Airlines, casinos and retail are probably stocks to avoid outright. Reduced consumer activity in these departments are definitely to be expected, resulting in lower valuations for the short-term.

The once, high flying, internet stocks are potential targets for short-term cash grabs as most of these covid-related companies are extremely oversold (at least in terms of technical analysis) and may be preferred in an Omicron-surge environment; think Zoom, Teladoc, Carvana, Wayfair and Chewy.

Finally, we have the big boys, the FAANG (plus Microsoft) stocks. Big Tech.

Valuations one these stocks have gone to the moon (no pun intended) therefore keeping hardcore hedge funds at bay, with fear of lower expected future returns. But these companies are trading at such multiples for a reason; they are the best of the best.

Overvalued, they may be, but how many companies are growing sales at 30 – 60% a year, regardless of pandemic-related slowdowns. I don’t expect Microsoft to slow their sales anytime soon, nor Tesla or Nvidia.

The more they drop, the more I would expect dedicated asset managers to rotate into Big Tech again, even with rate hikes looming around the corner. After all, they are the safest assets on the stock market right now.

And don’t get me started on bonds. Until the 10-year treasury gets anywhere close to 3-4% on the yield, there is still a better return guaranteed in equities.

If none of these interest you, may I introduce you to crypto poo.

#NFTs #Crypto #BBB #Omicron