Seasonal strength dominated trading to close out 2021, as the Omicron variant swept through the country. The Market seems to believe there will be less economic damage done this time, compared to Delta or the original variant from early 2020. That said, an economic impact will be felt. Calls for an “Omicron Blizzard” definitely influences behavior. There have been consecutive record new Covid cases this week, approaching 500K per day. Importantly, the Omicron variant so far is proving to be less deadly. South Africa said its Omicron wave has already peaked and has begun to remove restrictions. But it is more contagious and breakthrough cases for those fully vaccinated are taking a toll. But the vaccines have largely been preventing serious illness and hospitalizations.
The Omicron spread has slowed economic activity and productivity. Trips are being cancelled. Flights are being cancelled. Games are being cancelled. Restaurant reservations are being cancelled. New Year’s celebrations are being cancelled. People are calling in sick. Hospitals are short-staffed. Labor continues to be a major issue. Semiconductor manufacturing is being disrupted in China, due to the spreading virus. All this, as we enter 2022.
The Stock Market held its rally mode to close out the year. The S&P hit its 70th new high for 2021 on Wednesday. That’s not a record, believe it or not. 1995 saw 77 record closes. But to put in perspective how impressive it is, 1 out of every 4 trading days in 2021 saw a record close. And it came in the face of so much adversity. It certainly was a better year for investors than we had anticipated back in January. It far exceeded expectations on the Street too. The Market always tests investor mettle. That was certainly the case with 2021. Hindsight always makes things look easy and obvious. No such thing these days. The World is full of metaphorical landmines. This is such a remarkable Bull Market.
Tens of thousands of Holiday travelers had their plans derailed over Christmas weekend as flight cancellations disrupted one of the busiest travel seasons of the year. A total of 957 Christmas Day flights were cancelled. That was up from 690 on Christmas Eve. Over 1,300 flights were cancelled on Sunday, while cruise ships from Royal Caribbean and Carnival had to ditch stops due to outbreaks onboard. The CDC came out and discouraged people, regardless of their vaccination status, from taking a cruise. That type of guidance will absolutely influence behavior and economic activity. Messaging has been so confusing since day 1.
The New York City Subway ridership steadily increased throughout the pandemic. In November, it saw its Covid high reach 74% of pre-Covid levels. That was huge, considering the wide aversion to public transportation during a pandemic. It changed. Omicron sent it back down to 59% in December. Crowds at bars and restaurants fell too. The New Year’s Eve party in Times Square is being scaled back due to Covid. San Francisco and Atlanta cancelled theirs. But that contraction appears short-lived, as widespread severe illness has not followed the caseload spread. Vaccines are doing their jobs. It seems very likely that traffic gets back to pre-Covid levels in 2022, which was already happening in the Fall. Pent-up demand remains strong. The re-opening of America has experienced serious set-backs. But it’s still moving forward.
There was a question as to how strong the Holidays would be after the new variant was announced in South Africa the day after Thanksgiving. Global spread was certain. The fact is, activity was strong. Retail sales soared this year, both in-store and online, this Holiday season. Mastercard reported in-store sales were up 8%, while buying online rose 11%. It measured the period from November 1 thru Christmas Eve. In-store sales were even 2% higher than the same period in 2019, pre-Covid. That’s really impressive. In fact, online retailers saw a 61% jump compared to 2019. Keep in mind, most of this period lived through the Omicron spread. E-commerce accounted for 21% of total retail sales this year compared to 20.6% last year when most stores were closed and 14.6% in 2019. The irreversible trend of buying online got accelerated during Covid and is showing no signs of slowing. Demand is not an issue.
Liquidity has been a theme since the Covid crash. The Fed went bigger than it ever had before. They have begun reversing that campaign. Liquidity has been thinning. Volume has also been thinning, with reduced trading over the Holidays. It sets up for an eventful and bumpy 2022. Concerns remain about stretched valuations. It’s a real issue as cheap money went a long way to inflate asset prices. Stocks and Houses are atop of that list. Despite the S&P posting gains in recent weeks, most of the highest valuation, more growthy stocks, have seen some severe corrections. Software and Small Caps fit that bill. Year-end tax-selling kept them down. We could see a rush back into those beaten-down areas to start the new year. That is something we are paying close attention to. Buy low, sell high is still a thing. We will cover this and more in our 2022 Outlook next week. Inflation is by far the Number 1 economic concern going into the new year.
The world lost one of its best this week. John Madden passed away at the age of 85 in Pleasanton, his home for decades. He and his wife Virginia just celebrated their 62nd wedding anniversary. John Madden was one of a kind, successful in everything he did. He also had a knack for teaching and relating to people. I was fortunate to have met him and worked with many that were part of his crew back in my Turner Sports days. We were sponsors of the annual Madden-Mariucci Charity Bocce Tournament in Livermore. Those were some fun and memorable days.
John Madden made it look easy, because he was simply himself. He was authentic, inquisitive and so hard working. John Madden studied like nobody else and he changed the way people watch football. John Madden attracted new audiences to the game. He drew in women and kids with his engaging personality, boisterous sound effects and ability to simplify the game to those who didn’t yet know it. He is uniquely remembered for being a Hall of Fame coach, a Hall of Fame broadcaster, a savvy investor and the guy behind video games as we know them. There is so much to show for his efforts.
John Madden had high standards. He was committed to excellence and did not see kindly to those around him that did not properly prepare. He requested 3 simple things from his players: Be on time, Pay attention, and Play like Hell when he told them to. Success is a journey. You have to work for it. You have to put in the time and constantly commit to getting better. Success does not come easy, though the great ones make it look easy. Commitment to Excellence: John Madden lived it. He knew the way and never deviated course.
“The road to Easy Street goes through the sewer.”
– John Madden
I cherish the autographed football in our conference room.
Rest In Peace Coach. You made a very positive impact on other people’s lives. You left the world in a better place than you found it. That’s special. That’s everything.
Happy New Year everyone. We’ll be back, dark and early on Monday, ready for 2022.