Following an extremely volatile, holiday-shortened week, stocks rebounded on Monday, driven higher by a huge bounce in technology, as market participants grapple with the potential implications of the newly discovered “Omicron” coronavirus variant. The Dow Jones (DIA) closed higher after its worst day since October 2020, as the price of oil, which suffered its worst day all year, somewhat rebounded. While it is way too early to make any conclusions, I am personally looking at this dip as a potential buying opportunity in equities that were overstretched before.
Wedbush analyst Dan Ives wrote in a note to clients, “Ultimately this is not the first or last variant scare and our tech playbook over the last 18 months has been to use these macro/risk-off events as buying opportunities to own the tech sector specifically cloud, cyber-security, and 5G winners. While we are seeing a return to normalcy, a semi-remote workforce environment we believe is here to stay which underscores our tech cloud thesis into 2022 that the digital transformation build-out will be accelerated and is not a one time COVID pull forward event"
The US and EU have banned a host of destinations to ban flights from several African countries after the new variant was discovered. But cases of the variant, which the World Health Organization (WHO) has so far designated as a "variant of concern," have also detected in regions including the U.K., Hong Kong, Australia, Germany and Italy, among others.
While there is still much that needs to be studies regarding the Omicron variant, Pfizer (PFE) and Moderna (MRNA), the two largest producers the current COVID vaccine, asid they are already working to adapt current inoculations for the new variant and that, if a tailor made vaccine is necessary, would be completed relatively quickly. Moderna’s Chief Medical Officer Paul Burton said a new vaccine to address the Omnicron variant would be widely available in early 2022 and Pfizer said it could take about 100 days to have a tailor made vaccine widely available.
President Biden said of the new variant, “his variant is a cause for concern, not a cause for panic. We have the best vaccines in the world, the best medicine, the best scientists, and we’re learning more every single day. We have more tools today to fight the variant than we ever have before.”
Despite concerns present in the market, consumer spending, which accounts for roughly 70% of US GDP, continues accelerating. While supply-chain disruptions could lead shoppers toward in-stock items at physical stores this year, I think overall spending will see a healthy increase. The National Retail Federation (NRF) is forecasting an 8.5%-10.5% increase in holiday sales this year, compared with 2020.
The latest reading shows the personal savings rate is 7.5% (savings as a % of disposable income), the third-highest rate coming into Thanksgiving in the last quarter century. While this is down dramatically from the spike during the pandemic lockdowns (when consumers were unable to consume), the savings rate remains notably above the long-term average of 6.5% (6.1% excluding 2020). We think elevated savings will be drawn down, representing additional dry powder that will power consumer-spending growth for an extended period. At 4.2%, wage growth is now the highest it's been since Thanksgiving of 2007, providing additional fuel for consumers. Looking back over the last 25 years, when wage growth was above 4% and accelerating, GDP growth averaged 3.2%, compared with an average of 2.5% over the entire period, according to a report by Edward Jones.
Chief Executive Satya Nadella sold about half of his shares in the company last week, according to a federal securities filing. In the filing last week with the U.S. Securities and Exchange Commission, the Redmond, Wash.-based software company reported Mr. Nadella sold 838,584 shares over two days, down from close to 1.7 million shares.
Jack Dorsey announced he will be stepping down as CEO of social media Twitter (TWTR), giving the lead role to Chief Technology Officer Parag Agrawal. In my opinion, this is good news for Twitter, given they will now have more focused leadership. Dorsey, who is also the CEO of Square (SQ) has a lot on his plate.
Nissan Motors announced it was planning to spend $18 billion over five years to accelerate growth of their EVs.
Shares of Alibaba (BABA) stock fell to its lowest level in four years amid the continued regulatory push by the Chinese Communist Party (CCP).
Tencent (TCEHY) will further open their super-app WeChat, with over 1.2 billion users in China, and allow links to external shopping sites like Alibaba. This was a new regulation instituted by the CCP in order to encourage competition among the big tech firms. Previously, apps in China did not allow competitor links in their platforms.
Russia will continue slowing down the speed of Twitter on mobile devices until all content deemed illegal is deleted, state communications regulator
Please note price target upgrades were written during the session and may not reflect closing prices**
John Deere (DE) with three target raises. Stock currently around $350
Evercore ISI from $354 to $415 at Outperform
Deutsche Bank from $375 to $398 at Hold
Stifel Nicolaus from $430 to $445 at Buy
Marvell Technology (MRVL) with two target raises. Stock currently around $75
JP Morgan from $74 to $85 at Overweight
B. Riley from $83 to $90
Pfizer (PFE) target raised by Morgan Stanley from $50 to $60 at Equal Weight. Stock currently around $53
Snowflake (SNOW) target raised by BTIG Research from $353 to $421 at Buy. Stock currently around $366
Zscaler (ZS) target raised by Needham from $345 to $390 at Strong-Buy. Stock currently around $354.
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