Do you suppose Santa is wearing a mask? Do you suppose Santa is wearing a mask?\images\insights\article\mask-ornaments-small.jpg December 17 2021 December 17 2021

Do you suppose Santa is wearing a mask?

Omicron is weighing on psyches, but not so much markets ... yet.

Published December 17 2021
My Content

In the last weeks of each year, I present at two of my largest annual meetings. First, two days of continuing education meetings, where I sit among 100s of CPAs. CPAs are more interesting than you might think—a gentleman was philosophical on break with omicron fears keeping three quarters of the normal crowd virtual. “I had to get out!” he said, throwing caution to God. “It’s His plan after all, and we’re all going to die anyway!” he chuckled as he walked away. I’m always the most popular speaker—it’s not even fair, my competition is talking about accounting. With this week’s hawkish tilt by the Fed, the largest near-term risk seems to have shifted to omicron. While data so far suggest its effects are more like a mild flu or stubborn cold, if the person gets sick at all, a University of Hong Kong study also found it infects about 70 times faster than delta. Euro area composite PMI unexpectedly fell on a sharp slowdown in Germany and periphery services sectors linked to this new Covid wave, and the latest retail sales data (more below) reflects a marked slowing in traffic. The U.K. just recorded the most virus cases since the pandemic started, with the new variant accounting for the majority.

It seems strange that every other central bank in focus this week noted how omicron has clouded their outlook, yet Fed Chair Powell glossed over it. Omicron may not be driving deaths higher (yet), but cases have jumped 40% over the past month and consumers, particularly sports fans, are taking notice. Their favorite teams and venues are getting hit. The NBA (which has an estimated 97% vaccination rate) this week had to postpone Chicago Bulls games, the NHL (which has a reported 100% vaccination rate) reinstituted Covid protocols amid a flood of new cases, and the NFL said at least 100 players have tested positive. Broadway canceled at least three shows, Apple is starting to close stores and major concerts are seeing no-shows. Covid fatigue! The pandemic should subside as a macro and market theme in 2022. But the second-round effects of policies and developments set in motion by the unprecedented 2020-2021 cycle will remain cyclical forces. A strong consumer bolstered by $2 trillion in excess savings as we speak. Rising capex as companies reconfigure supply chains and operations. A housing boom (more below) as more space is more desirable. And rising wages and incomes as shortages have allowed workers to ask for—and get—more (more below).

S&P 500 peaks historically have come at the end of Fed tightening cycles, not the beginning. Policy shifts tend to take a year to even start having an impact, with the median and average time to recession after rate liftoff 37 and 42 months, respectively. That implies the current expansion runs deep into 2025 if the Fed makes its first move in spring, as expected. The sell-off in tech and growth stocks has been curious. It’s come on rising-rate worries but long rates have been trending down since Thanksgiving and, also curious, moved down more after the Fed this week signaled at least three rate hikes in each of the next two years. We’re at the juncture, the final 10 trading days, where the Santa rally usually kicks in. Sentiment has turned markedly bearish, laying a nice pathway for his sleigh. At the end of the week, I delivered my speech to the Lancaster Chamber of Commerce, a 150-year-old organization, a founding chamber of the U.S. Chamber and one of the largest in the country. My biggest audience of the year, only half the tables as normal were set up in the cavernous convention center ballroom. On Q&A, there were just three questions, “What do you think about crypto’’ times three. After regaling them for 10 minutes, the spectacular chamber president, my host for 15 years, announced his retirement, quipping, “Based on the last 10 minutes of discussion, I have no idea what the H is going on. It’s time for me to retire.’’ With a tear in my eye, for I will miss him greatly, I thought, “Sorry, Tom. You’ve got to learn this stuff, because this is one of those instances where you can’t let go and let God.”


  • Millennials are turning into their parents November housing starts surged, both for single-family and multifamily units, and permits jumped to a 3-month high. The momentum is running above long-term demographic demand and signals the sector should be able to easily absorb next year’s rate increases. A big factor: millennials, who now outnumber baby boomers and in the past year accounted for more than half all home-purchase applications.
  • There’s not going to be enough room on the shelves Data this week showed consumer goods demand declining even as output is rising—led by manufacturing, industrial production hit its highest level since 2019. At the same time, more and more stuff is being offloaded at the ports. So, the demand/supply imbalances we’ve all heard about ad nauseam and that helped CPI and PPI soar to multi-decade highs are fading … potentially fast. Good for future inflation if the trends hold up. Not so good for retailers if spending patterns that are shifting to services hold up, leaving them with too much inventory.
  • Millennials are getting married Covid-19 meant putting event plans on hold, and weddings were no exception, falling from 2.1 million in 2019 to 1.3 million in 2020 before rebounding to 1.9 million this year. But get ready to party next year, when pent-up demand is expected to push the count to 2.5 million, the most since 1984, according to online source, The Wedding Report.


  • I thought we already had peak inflation PPI surprised, jumping a record 9.6% year-over-year (y/y) in November. The core rate rose 7.7% y/y, also the biggest increase since the new PPI gauge was formulated in 2011. A New York Fed survey of consumers put median inflation expectations one year out at a record 6%, though the three-year ahead rate was a more moderate 4%.
  • If the Mister hasn’t bought early, it may be bleak under my tree Retail sales moderated sharply in November, with “control” results that strip out autos, gasoline, building materials and food service and feed directly into the GDP report declining vs. expectations for an increase of 1% or higher. Sales from electronics and department stores fell notably, and online sales were flat. Citi’s gauge of credit card activity shows the deceleration carrying over into December, with total spending down 800 basis points from November.
  • They better not raise the price of my latte After a 5-week strike, John Deere struck a deal with unions that included an increase in retirement benefits, 10% immediate salary bumps, 5% wage increases in 2023 and 2025 and quarterly cost-of-living adjustments (COLA), along with a $8,500 bonus. A 12-week strike at Kellogg cereal plants appears to be ending under a deal with enhanced COLAs. Elsewhere, workers at three Buffalo locations became the first among 15,000 Starbucks to vote to unionize. And employers everywhere are being pressured to absorb rising costs so their workers don’t lose purchasing power. 

What else

Speaking of shelves That’s where the Build Back Better bill is going as Senate Democrats abandoned efforts to pass it this year. It seems the worst CPI print in 30 years sealed its fate as Sen. Manchin, the man-at-the-margin, worried it would only add to inflationary pressures despite White House arguments to the contrary. A move on it next year, even if it’s slimmed down with tax increases removed, will be dicey. It’s a midterm election year and moderate Dems are under pressure.

Perhaps small businesses think workers will be back The latest NFIB survey shows the percentage of firms expecting the economy to improve at its lowest level since 2012. Low inventories and inflation pressures were major concerns. Interestingly, while worker shortages remain a problem, the net percentage planning to raise compensation was flat.

Merry Christmas! Bank of America shares that Santa Claus would have to visit 822 homes a second to deliver all the world’s presents on Christmas Eve, traveling at 650 miles a second. Fortunately, he has an official pilot’s license from the Commerce Department. Meanwhile, in Japan, KFC is such a Christmas tradition that orders must be placed two months in advance, while here in the U.S., an estimated 230,000 tons of food is wasted each Christmas and more than 400,000 illnesses are caused by spoiled leftovers.

Connect with Linda on LinkedIn

Tags Equity . Markets/Economy . Coronavirus . Monetary Policy . 2022 Outlook .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Past performance is no guarantee of future results.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Consumer Price Index (CPI): A measure of inflation at the retail level.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

Growth stocks are typically more volatile than value stocks.

Producer Price Index (PPI): A measure of inflation at the wholesale level.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Stocks are subject to risks and fluctuate in value.

The Eurozone Composite PMI is a measure of combined manufacturing and services activity in the region.

The National Federation of Independent Business (NFIB) conducts surveys monthly to gauge how small businesses feel about the economy, their situation and their plans.

Federated Equity Management Company of Pennsylvania