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U.S. stocks are lower in early action, after flirting with fresh all-time high during last session, as the markets continue to assess the ultimate impact of the Omicron COVID-19 variant. After recent positive news about the variant possibly being milder than its delta counterpart and the potential effectiveness of a vaccine booster, officials signal that the course of the pandemic is yet to be determined. In other equity news, Hormel Foods Corporation bested Q4 earnings and revenue expectations, while delivering record sales and earnings for the quarter, and GameStop delivered mixed results, posting a wider-than-expected loss. In economic news, initial claim came in lower than expected, but continuing claims were higher than the consensus estimate. Treasuries are mixed, with the yield curve flattening, and the U.S. dollar is gaining ground. Crude oil prices and gold are lower. Asia finished mostly higher, and Europe is lower amid omicron concerns.
As of 8:45 a.m. ET, the December S&P 500 Index future is 17 points below fair value, the DJIA future is 160 points below fair value, and the Nasdaq Index future is 64 points south of fair value. WTI crude oil is decreasing $0.97 to $71.39 per barrel and Brent crude oil is declining $0.91 to $74.91 per barrel. The gold spot price is pulling back $9.30 to $1,776.20 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is advancing 0.2% to 96.12.
Hormel Foods Corporation (HRL $43), the global branded food company, which includes brands like Planters, Skippy, and Spam, reported Q4 earnings-per-share (EPS) of $0.51, above the $0.50 FactSet estimate. The company delivered record Q4 sales and double-digit sales growth from all four segments. Net sales for the quarter were $3.5 billion, up 43%, and for the fiscal 2021 the sales were $11.4 billion, up 19%. In fiscal 2022 guidance, the company noted that it expects sales and earnings growth in all segments and highlighted key drivers to growth amid complex operating environment.
GameStop Corp. (GME $174) reported an adjusted Q3 loss of $1.39, below the $0.52 shortfall that was forecasted. The results were mixed, as revenues came in higher than expected at $1.30 billion compared to the estimates of $1.19 billion. The specialty retailer offering games and entertainment products noted that the sales attributable to new and expanded brand relationships, such as Samsung, LG, Razer, Vizio and others, contributed to growth in the quarter. The company also noted its focus on front-loading investments in inventory to meet increased customer demand and mitigate supply chain issues.
For a look at the recently ramped-up volatility, read the Schwab Center for Financial Research's commentary, Market Volatility: Schwab's Quick Take, where we point out how from a global stock market perspective, policymaker and consumer responses will be key regarding the economic impact. We discuss how market volatility is unsettling, but historically not unusual, and if you've built an appropriately diversified portfolio that matches your time horizon and risk tolerance, it's likely the recent market drop will be a mere blip in your long-term investing plan. However, it can be hard to do nothing when markets are rough.
Schwab's Chief Investment Strategist Liz Ann Sonders also offers her 2022 U.S. Market Outlook: Under Pressure, where she discusses where we go from here given that the pandemic is not exactly behind us. She discusses the macro backdrop that includes slower growth and a move to tighter monetary policy, which tends to usher in higher intra-market correlations and greater tail risks. We recommend a bias toward quality and not trying to time the market. There are concerns for 2022, but investing should always be a disciplined process over time.
Find all our market commentary on our Market Insights page and follow us on Twitter at @SchwabResearch.
Jobless claims mixed, but downtrend remains intact
Weekly initial jobless claims (chart) came in at a level of 184,000 for the week ended December 4, versus the Bloomberg consensus estimate of 220,000 and compared to the prior week's upwardly-revised 227,000 level. The four-week moving average fell by 21,250 to 218,750, and continuing claims for the week ended November 27 increased by 38,000 to 1,992,000, above estimates of 1,910,000. The four-week moving average of continuing claims decreased by 54,250 to 2,027,500.
Treasuries are mixed, as the yield on the 2-year note is little changed at 0.68% and the yields on 10-year note, along with the 30-year bond, are falling 3 bp to 1.48% and 1.85%, respectively.
The Treasury yield curve has flattened noticeably as of late amid the Omicron variant uncertainty and as the Fed is expected to discuss speeding up its monthly asset purchase tapering campaign at next week's monetary policy meeting.
Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest 2022 Fixed Income Outlook: Rough Waters how we expect another wave up in bond yields in 2022 as central banks around the world shift away from the very easy policies of the past few years. Kathy points out that with the pandemic-era policies ending, investors should be prepared for shifting tides and the risks and opportunities they present.
Europe lower, German exports unexpectedly rise
European equities are mostly lower in afternoon action as investors continue to grapple with the uncertainty surrounding the impact of the new COVID-19 omicron variant that has been detected in several countries around the world and has roiled the markets as of late. Despite some recent positive news suggesting the variant may be milder than its delta counterpart and the potential effectiveness of booster shots against the variant, the World Health Organization (WHO) director-general warned that the impact is still difficult to know. This new variant has added more uncertainty regarding future economic activity, the ongoing supply-chain challenges, and rising inflation pressures, as well as government and central bank responses. Last week's comments from Fed Chairman Jerome Powell in the U.S. continued to garner attention after he pivoted to a more hawkish stance to combat the persistent inflation pressures by saying the Central Bank will discuss speeding up its tapering campaign despite the uncertainty toward the variant. The Energy and Consumer Discretionary sectors are trading lower, though the Real Estate and Health Care sectors are gaining ground. In economic news, German exports and imports rose unexpectedly, with exports reporting the highest level in over a year. Exports jumped 4.1% month-over-month (m/m) and imports rose 5.0% (m/m) compared to consensus estimates of 0.8% and 0.4%, respectively. The euro is lower and the British pound is little changed versus the U.S. dollar, while bond yields in the Eurozone and the U.K. are moving lower.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest article, Omicron: Will the Virus Wave Pattern Repeat?, how we shouldn't necessarily expect this wave to unfold the same as the others. Jeff adds that the rest of the month may hold policymaker responses to what we don't yet know about Omicron's effects, resulting in continued volatility. He also notes that this may be tempered by a potential delay in monetary policy tightening and a backdrop of strong global economic growth.
The U.K. FTSE 100 Index is down 0.4%, and Switzerland's Swiss Market Index is trading 0.1% lower, while France's CAC-40 Index and Germany's DAX Index are decreasing 0.4%, Italy's FTSE MIB Index is ticking 0.2% to the downside, and Spain's IBEX 35 Index is trading 0.7% lower.
Asia shares finished mixed amid omicron uncertainty
Stocks in Asia finished mixed amid concerns and uncertainty regarding the omicron variant. While questions regarding transmissibility and severity of the omicron variant of Covid-19 remain unanswered, WHO warned that the variant could change the course of the pandemic. Some preliminary evidence suggested that the variant could be milder than the delta strain, and Pfizer Inc. (PFE $51) and partner BioNTech SE (BNTX $292) have announced that preliminary results of a study of their COVID-19 vaccine showed that three doses neutralize the Omicron variant, while two doses show significantly reduced neutralization. The variant has fostered uncertainty regarding the ultimate economic impact and government responses, adding to the uncertainty regarding ongoing supply-chain issues and the resulting inflationary pressures.
Schwab's Jeffrey Kleintop offers his 2022 Global Outlook: Slowing But Not Slow, noting how global GDP surpassed its pre-pandemic level in 2021, and although it's expected to slow in 2022, it is still expected to grow at an above average rate. In addition, Jeff adds that fiscal policy in the U.K. and Europe is expected to support economic growth, while central banks have been slow to end their loose monetary policy, and supply and inflationary pressures may soon ease up. Amid all this, Jeff highlights four themes for investors: consider international stocks, go green and look at eco-friendly investments, look into firms that are buying back shares, and guard against potential gluts that might emerge. In other economic news in the region, China’s producer prices rose at a 12.9% annual rate in November, but were lower than the 13.5% figure reported in October. Consumer prices in China, as measured by CPI, rose 2.3%, higher than the 1.5% reported in October. The upward pressure was attributed to seasonal factors, increasing costs, and the pandemic.
Japan's Nikkei 225 Index decreased 0.5%, with the yen firmer, and China's Shanghai Composite Index rose 1.0%. The Hong Kong Hang Seng Index advanced 1.1%, India's S&P BSE Sensex 30 Index gained 0.3%, Australia's S&P/ASX 200 Index decreased 0.3%, and South Korea's Kospi Index moved 0.9% higher.
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