American markets today, Monday, viewed several hours before the opening at 9:30 a.m. EST, appear set to start in the green with the S&P 500, DOW and NASDAQ all strongly positive,
That follows Friday’s plunge as the DOW and S&P 500 took their largest one-day drops in months when markets reacted – or over-reacted depending on one’s point of view -- to news of a new and potentially resistant coronavirus – now called Omicron. Authorities, markets and investors became alarmed and sold off as the shock of the new variant combined with continuing worries about inflation, supply chain problems and government policy uncertainties. The impact even hit some stay-at-home stocks such as Amazon.com which dropped $75.85 or 2.11% to close at $3504.56 although other stay-at-home stocks gained. DoorDash Inc. rose $2.72 per share or 1.47% to close at $187.65 and Netflix Inc. gained $7.35 or 1.11% to close at $665.64. Not surprisingly, travel stocks suffered some of the largest losses as Expedia Group Inc. closed at $159.80, down $16.47 or 9.48% while United Airlines Holdings Inc. closed at $42.26, down $4.47 or 9.56%. Amongst hotels, Hilton Worldwide Holdings, Hyatt Hotels Corp. and Marriott International Inc. all took heavy hits.
Canadian markets also look poised to open positive with the TSX 60 firmly heading up.
European markets have already opened at time of writing and began the trading day with a nervous rally as the FTSE 100, DAX and CAC 40 moved into positive territory. Some European travel stocks including Deutsche Lufthansa AG and International Consolidated Airlines Group S.A., usually known as IAG, and the owner of several airlines are edging up.
Last Friday’s plunge brought a reminder of the two most abused words in the entire financial lexicon: ‘buying opportunity.’ Not every stock that suddenly heads for the basement is an investment bargain and we need at least a few hours to tell the difference. American Airlines, United Airlines and other airline stocks are headed up in pre-market trading and it will be interesting to see whether that holds during the trading day.
Amongst precious metals, gold and silver are heading up at time of writing.
Amongst currencies the British pound sterling and Canadian dollar are up against the American greenback while the Euro is down.
Amongst commodities, oil is rebounding from Friday’s drop as markets await the outcome of the OPEC+ meeting later this week. While the world does not await OPEC announcements with the same anxiety as was the case in the 1970’s, nonetheless its reaction to pressure by the United States and its allies, as well as the potential impact of the Omicron will be heavily scrutinized.
For those assessing Friday’s drop in their investments, today might not be a great day to discuss portfolio construction but as well as the Christmas shopping list it would be helpful to assemble a list of investment sectors that have become more important than previously and appear likely to grow in importance in 2022. (I am not suggesting that they belong in every portfolio, but they merit consideration between advisor and client during yearend reviews.)
At or near the top of the list, cybersecurity stocks have become front and center in the digital world. Dan Ives at Wedbush Securities in New York says that “... the cybersecurity sector …is in the midst of parabolic growth into 2022 given the elevated level of threats and enterprise driven shift to cloud.” Palo Alto Networks is well-positioned for dealing with customers of all shapes and sizes, he says. “We believe this is a cloud cybersecurity re-rating story in motion and view Palo Alto's stock as having a strong upward trajectory over the next year as the Street starts to fully appreciate the cloud transformation playing out.”
Also, at or near the top of the list, the entire metaverse concept will have a place in many portfolios though conservative investors may be understandably apprehensive. The metaverse is a hugely complicated concept that would take several columns to treat in detail but for the sake of brevity it can be understood as the virtual world including all of its companies and platforms and amounts to an extension of real life. Ivana Deleveska at SPEAR Invest explains that it has three main sectors:
- gaming with recognizable names like Roblox Corp.
- industrial with names like Nvidia Corp.
- social for which the most recognizable name is Facebook
Also on the list, the electric vehicles sector, often just referred to as EV, appears poised for expansion in 2022 and beyond. Tesla has the first mover advantage but legacy car manufacturers such as Ford Motor Co. and General Motors Co. are staking a claim to the EV space. Amongst the FAANG+ companies, Apple Inc. appears likely to partner with a legacy car manufacturer to release its own car.
Environmental, social, and governance (ESG) refers to a list of benchmarks applied to a company’s operations to determine how well it manages operations in three areas:
- Environmental – the company’s regard for the environment in all of its practices
- Social – the company’s relationships with stakeholders including employees, suppliers, customers, government and the community
- Governance – referring to the quality of leadership, ethical practices and shareholder rights.
This list may not be as much fun as a Christmas list, but it also needs a fair amount of checking as we approach yearend.
Related: What is the Metaverse Anyway?
Disclosure: I do not own any shares in any company mentioned in this column.
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 is scheduled for release in January 2022 and his book on overseas investing is scheduled for release in January 2023.