I hope you all enjoyed your pumpkin spice lattes over Thanksgiving because year-end is quickly approaching! Unfortunately, this year’s festivities brought us a very unwelcomed guest, “Omicron”, which spoiled what was supposed to be a stress-free holiday weekend of overeating and watching endless hours of NFL football. The holiday-shortened trading session on Black Friday brought with it the DOW’s worst day since October 2020 with a 2.5% decline. Not far behind were the S&P 500 and NASDAQ down 2.3% and 2.2%, respectively. Oil (WTI) plummeted 13% even though supply shortages had been the concern just days before when President Biden released 50 million barrels of strategic reserve. All of this is a knee jerk reaction to the scary Omicron headline with very little details on its severity compared to the current Delta strain. The weakened market then received an untimely nudge downward from Fed Chairman Powell when he announced the Fed was considering a faster tapering of its bond purchasing program. I would highlight that, from an economic perspective, this is actually a positive signal as it represents a stronger U.S. economy no longer in need of the added support. It’s key to be reminded that the Fed’s overall policies are still extremely simulative and positive for equity markets. Once investors digest Omicron and a dialed down stimulus from the Fed, we should be in for a timely Santa Claus rally.
Normally I hate seeing stocks tank, but I have to admit a part me enjoyed watching this train wreck. For the last year, I’ve been a broken record about selling the stay-at-home COVID-19 related stocks. Peloton, the provider of at-home connected bikes and treadmills was the pandemic darling of Wall Street up 434% in 2020. But, not even I was expecting the single day 35% drop where the market would punish Peloton’s post earnings in early November. The combination of an earnings miss, weakening demand, price cuts, and forecasted cuts sent investors running for the exits. Another reminder that fundamentals will matter eventually and not to give into FOMO (fear of missing out) when you see a stock skyrocket but can’t wrap your head around why it’s skyrocketing. In my view, not even Omicron can save Peloton. So, save your cash and go visit your nearest Soul Cycle instead. (PTON: $44, it’s 52-week high $171.09)
I continue to preach the gospel of the reopening value trade which includes my beloved travel stocks. In my view, this is where long-term investors will be rewarded. Yes, it hasn’t been without a fair share of volatility. Most recently, Omicron being just another short-term example of why this investment thesis is a marathon not a sprint. It’s understandable that investors still harbor some level of PTSD (Post-traumatic stress disorder) from COVID-19’s initial black swan event of 2020. At the heart of those fears are travel related companies, none more so than the cruise line industry which was down 10% from the Omicron headlines. We all remember the stranded cruise passengers sailing aimlessly because no port would accept them. Fast forward to today, voyages have turned free cash flow positive even on passenger capacity restrictions. Debt levels are on the decline as debt refinancing is available at much lower interest rates. Advanced booking for the second half of 2022 are ahead of a very strong pre-COVID-19 2019 levels. With more ships returning to service, it seems the cruise industry is on the mend and ready to win the war.
No doubt, we’ll continue to face hiccups along the way to returning to normal. Omicron isn’t the last mutation of the coronavirus, so we all should brush up on our Greek alphabet. The key continues to be focused on the long-term, investing in companies you’ll want to own when life is fully back to normal. We saw a glimpse of improvement this past Thanksgiving Sunday with 2.4 million people passing through U.S. airports, the busiest travel day since the onset of the pandemic. As more of the world continues to open up in the months ahead, experiences and travel will most definitely win over spin bike and Clorox wipes.