Stocks closed lower yesterday, giving up heady intraday gains.
After reports that the first Omicron case was found in CA, stocks reversed course, closing at their lows of the day.
While much is still unknown about the new variant, the general belief at the moment is that the current vaccines should provide some protection, and that the symptoms of Omicron appear to be mild.
Nonetheless, after a spectacular rally this year, the current uncertainty provided a perfect opportunity to pull profits.
But I would also attribute yesterday's pullback, and the pullback from the day before, to Jerome Powell's testimony before the Senate on Tuesday, and the House on Wednesday. In particular, his comments on Omicron and inflation.
In short, he said the variant poses downside risk to the economy. He also said inflation is likely to stick around for longer than they had originally anticipated, likely until mid-2022. As such, he expects the Fed will have to speed up their bond tapering.
The other thing unnerving the markets is the looming government funding deadline, which is Friday at midnight.
It's hard to imagine not passing a funding measure as that would result in a government shutdown. And neither party would benefit from such a move. But you never know.
In other news, MBA Mortgage Applications fell -7.2% w/w (+5.0% for purchases, but -15.0% for refi's).
PMI Manufacturing came in at 58.3 vs. views for 59.1. Solid reading, but a slight miss nonetheless.
Although, the ISM Manufacturing Index came in as expected at 61.1, in line with the consensus, and a bit higher than last month's 60.8.
And the ADP Employment Report beat expectations with a gain of 534,000 new private payroll jobs last month vs. the consensus for 525,000.
That bodes well for Friday's Employment Situation Report. At the moment, the consensus is calling for 543,000 new jobs being created (525K in the private sector and 18K in the public).
In the meantime, the market will be looking for any news on the Omicron variant, inflation, and whether a deal can get done in Congress by Friday night.
On the positive side however, is a solid economy with GDP growth expected to accelerate into the end of the year. And with December typically being a strong month for stocks, we could see some 'buy the dip' action come in at any time.
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Best,
