By Michael Brush
Hang on to your stock-market exposure and add more if you can.
The twin fears spooking investors – the omicron COVID strain and inflation – are overdone. Stocks should proceed higher as more people figure this out, leading to a Santa Claus rally later this month.
Corporate insiders confirm this view. They’ve stepped up buying considerably in the market weakness. What’s more they’re buying all the right groups – travel, retail, energy and materials, among others. These are the cyclical areas that’ll do the best as worries about growth recede, and insiders know it. I don’t see any hunkering down in defensive names like consumer staples.
There are lots of stock bargains because there’s been so much damage, even if narrower indexes like the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.08% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.56% have hung tough, propped up by a few large names. The Russell 2000 small-cap index /zigman2/quotes/210598147/delayed RUT 0.00% is down more than 10%, and most stocks in the more widely followed indexes like the S&P 500 have also fallen more than 10% at some point recently.
I’ll single out 10 names favored by insiders, including several I’ve recently suggested in my stock advisory letter Brush Up on Stocks (the link is in my bio, below). But first, a quick look at why insiders, like me, don’t seem to be too worried about the twin fears.
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The concern here is that this new variant is far more contagious and deadly than the delta variant.
The first fear may be true. Case counts are rising sharply in South Africa, which suggests it is more contagious. As for lethality, though, omicron seems to be mild so far. There is still a lot to learn, but this is the message we consistently get from doctors and health authorities with lots of experience with COVID.
“What we are seeing clinically in South Africa, and remember I’m at the epicenter of this where I’m practicing, is extremely mild for us,” says Angelique Coetzee, a doctor in South Africa who has three decades of experience. “These are mild cases. We haven’t admitted anyone. I’ve spoken to other colleagues of mine and they give the same picture.”
Hospitalizations in South Africa “are ticking up but not incredibly fast,” agrees William Hanage, an associate professor of epidemiology at Harvard and co-director of its Center for Communicable Disease Dynamics. U.S. health authorities confirm omicron may not be especially lethal. Both the Centers for Disease Control and Prevention and the Minnesota Department of Health describe the first cases found in the U.S. so far as mild.
if the omicron variant is mild, this wouldn’t be a surprise. Respiratory viruses naturally evolve to be more contagious and less lethal , notes Professor Karl Lauterbach, an epidemiologist in Germany. This makes sense from the point of view of a virus. A virus has a better chance if it spreads quickly and does not kill its host.
On vaccine “escape” or evasion, former Food and Drug Administration chief Scott Gottlieb thinks the current vaccines will work against omicron by suppressing symptoms enough to lower hospitalizations. “There’s a high degree of confidence that efficacy is going to be preserved,” he says. “Will it be the same 95%? Perhaps not, but you will still have a meaningful amount of efficacy.”
He notes the mRNA vaccine companies can tweak their vaccines to make them even better, in a matter of months. Vaccine companies like Pfizer /zigman2/quotes/202877789/composite PFE -1.06% confirm boosters will work, and that they’ll be able to customize them for the omicron variant. “In our view and reiterated by Pfizer, the current booster will likely be effective,” says Jefferies biotech analyst Michael Yee. “A new version for 2022 can be even better.”
There’s are lots of reasons to think inflation fears are overblown. The worry here is that the Federal Reserve is “behind the curve” so it will have to hike rates aggressively, which might kill growth and the bull market. This isn’t going to happen. One sign is that commodity prices and shipping costs have been falling sharply. These are often the leading edge of inflation.
Next, take a moment to drill down on the current inflation spike. To do so, consider the Atlanta Federal Reserve’s breakdown of the parts of the Core CPI Index into “flexible” categories (quick to change) and “sticky” categories (slow to change). Right now, the flexible components account for most of the headline inflation.