Today’s volatile markets are not a surprise to us. As we stated in last week’s commentary: “We continue to expect ongoing volatility in financial markets.” We also highlighted that the Omicron variant “will be a continuing concern. Its ultimate effects on economic activity and financial markets remain unknowable. We view the latest downturn in interest rates as problematic.”
Among the many unknowns with respect to the Omicron variant is that we still don’t know the extent of its virulence, although many assume it is not as virulent as the Delta variant. But it is now accepted that Omicron is much more transmissible than the Delta variant. According to the World Health Organization (WHO), Omicron has been reported in 89 countries as of December 18 with the number of cases doubling in 1.5 – 3 days in areas with community transmission. Dr. Scott Gottlieb on CNBC this morning expressed his view that in the U.S. “we’re in for a difficult 4-6 weeks right now.” The highly transmissible nature and speed of infections of Omicron is what gives us hope that the repercussions from Omicron infections will also dissipate very quickly. The timing of Omicron’s spread across countries will help determine the longevity of concerns over this variant. In the meantime, as we wrote in last week’s commentary: “We believe that the U.S. will be more resilient in dealing with the effects from Omicron relative to most countries.”
Senator Manchin’s indication yesterday morning of his rejection of President Biden’s roughly $1.75 trillion “Build Back Better” legislative proposal, no doubt, also had an effect on today’s volatility.
Today has not changed our core views. To reiterate from last week: “We believe that economic data released this week confirms our stance that — on a risk/reward basis at current prices – a robust economy with persistent inflation remains as the most advantageous environment to add to equity positions in Value and Cyclical type stocks on market downturns. We anticipate that European and emerging markets (EMs) will become increasingly attractive as the global economy expands. We have not lost faith that interest rates will eventually rise in the not-too-distant future.”
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