Yesterday, we reached a new record of 1 million new daily Omnicron covid cases, which experts are saying is due to the inability of vaccines to protect people. It doesn’t seem to be affecting the market because the symptoms appear to be much milder than the Delta, and hospitalizations for infections are down to around 1% versus nearly 18%.
The big news is surging US 10YR. We believe that it can be attributed to the realization of rising interest rates and the Fed pulling back.
This leads me to say that my top concern for 2022 is a Fed-induced recession or, worse, a financial meltdown. Historically, the Fed has come in to save the day, but Bearish sentiment is building.
The Fed’s interest-rate hike cycle could start causing economic problems in the second half of next year, which I believe is the greatest threat to the market.
BlackRock, the most significant investment company globally, stated that they are reducing investment risk because of uncertainty around 2022.
Doubleline’s Jeff Gundlach stated that events he expected to occur in 10-15 years “are accelerating toward that crescendo in economics and politics” and that rate hikes of 1-1.5% could “break the economy,” leading to recession. The bond market is “sniffing out weaker economies.” My base rate predicts that we’ll see trouble in the second half of 2022.
Gundlach states that “we are witnessing things that haven’t happened in 40- or 50 years,” like negative interest rates. Gundlach explains that rising prices for vehicles “will likely slow down the economy as we approach 2022 because automobiles are obviously long-term purchases.” This is because consumers will soon realize that their existing purchases are losing value faster than normal market conditions.
I remain concerned about what I see in the markets. For example, the S&P 500 recently reached its 70th highest close of the year despite economic weakness, and it hasn’t touched the 200MA in nearly two years. Once the Fed ends programs it used to boost market conditions, I will continue to be worried.
Tech Opportunity?
Tech stocks have seen a drop and loss of momentum from the pandemic, but it may be changing. This could be an opportunity for investors to pick up some stocks on a dip.
As investors struggled to justify the stock’s sky-high valuations over the past year, aided by a pandemic, growth sectors like cloud computing and software saw their shares drop at the end of 2021. The tech-heavy Nasdaq 100 Index outperformed the S&P 500 Index for the first time since 2016.
Companies like DocuSign (DOCU) have stated that they’ve witnessed a return to regular demand. This indicates that the remote connectivity software market was losing its tailwind. DOCU’s shares plunged more than 40% in a single day and now stand at around 50% of its July high.
However, there will be a high demand for technology in the years to come, whether it is cloud computing or connectivity. It won’t hit the pandemic peak. Look at how large companies handled their workforces at year’s beginning.
Like its competitors, Goldman Sachs (GS) is asking employees to work remotely. The investment bank giant instructed its employees to work remotely from January 18. GS joins other companies asking its employees to work remotely until January 18.
They’re not the only Wall Street bank to use this policy. Citibank (C), JPMorgan Chase, JPMorgan Chase (JPMorgan Chase), and Citibank (C) also work from home to begin the year. JPMorgan employees are expected to return to work at the start of February and others around the same time.
However, new COVID-19 variants have delayed these plans. Businesses are becoming more cautious as cases are increasing again. According to Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, Omicron strain infections might not peak before January or February. This could impact the plans of some management teams.
However, other companies are not taking chances. Indefinitely, tech giants Alphabet (GOOGL), and Apple (AAPL), have suspended all in-office work.
This trend won’t be slowing down anytime soon. James Gorman, Morgan Stanley (MS) CEO, said companies will likely continue to work remotely until 2022. Gorman said it could even last longer, noting that there could be more strains in the months ahead.
Many people still work from home. Businesses will continue to rely on remote work technology. Software as a Service (“SAAS”) companies such as Salesforce (CRM), DocuSign(DOCU), and others will continue to experience increased demand for their products. Cloud service providers such as Microsoft (MSFT), Amazon(AMZN), Alphabet (GOOGL), Alphabet (GOOGL), along with semiconductor companies like Nvidia, Intel (INTC), Advanced Micro Devices, and AMD (AMD), will continue to see increased demand for their products.
Bottomline – Tech Opportunity?
The demand for digital services may not be as strong as during the pandemic. COVID-19 certainly has accelerated the digitization of businesses. This trend will continue, which will continue to drive increased demand for remote work equipment.
