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Daily Brief - Black Friday: a dip to buy? (Nov 29, 2021)

Friday was a doozy. A double whammy that brought back memories of 2020 that most investors hoped would gradually slide into irrelevance. Along with the usual gazillion inch TV screen sales, stocks and crude oil contracts were on sale on Friday, too.


The driver of the unusual panic - DOW lost 1,000 points and oil prices dipped 13% in the biggest one-day move since April of 2020 - was the discovery of a new COVID strain in South Africa, dubbed Omicron. (The naming decision by WHO instantly went viral on Twitter). Banks were down, industrials were down while the pandemic winners - Peloton and Zoom - ended the day 5% higher.


Now, everyone take a breather.


There are a few things to consider as you ponder the ocean of red in your portfolio. Here are the facts.


The World Health Organization reported that a new potentially dangerous coronavirus variant—Omicron— started to spread in southern Africa and some other countries. The key bit in the news reports is that the variant contains more mutations to the spike protein— the component of the coronavirus that binds to cells—compared to the highly contagious COVID-19 delta variant. This new Omicron variant features about 50 mutations, while the delta strain has just two mutations to the receptor binding domain.


However, soon after the brain trust at Goldman Sachs issued a Friday note downplaying the fears of Omicron, claiming they were unfounded. “This mutation is unlikely to be more malicious and that the existing vaccines will most likely continue to be effective in preventing hospitalizations.” The thrust of their argument is a write up by NICD in South Africa that states that “no unusual symptoms have been reported following infection with the B.1.1.529 variant”. In other words, so far the only thing we know is that the rate of transmission is higher.

Goldman Commodity strats also agree. Currently, they write, the market is pricing a roughly 4 million b/d negative demand hit over the next three months. However, global oil demand fell "only" 2 million b/d peak to trough during last winter’s Covid wave, meaning that today the market priced in a twice as severe wave as last winter!


Keep calm and carry on, says Goldman. Or even buy more.