💎Pika World Pulse: Market Conviction-less Rally💎

🧨Will Omicron kill the travel industry?✈️

The travel sector has been met with multiple headwinds: from the stringent air and sea travel guidelines to the development of new variants. While the pandemic has hit the industry hard, some analysts are warming to the idea of accumulating airline stocks in the wait for a bounce again.

What’s with this optimism?

First, while the virus hits the general population, many airline crews do not wish to be held in hotels. There is a general inclination to be back home, which means that airlines have been working hard to combine flights into larger aircraft for better efficiency.

The pent-up demand for travel remains robust as the CDC guideline on isolation appears to be less restrictive than before, given a larger vaccinated population. This means more crews can return to work earlier than the prior waves. As such, each successive wave of variant appears to deal a less destructive blow to the sector than early 2020.

🎢Should you be buying the Dip?🥊

Without a doubt, it is a silent question for some to Pika World. After all, the rate hikes in 2018 had caused a near bear market correction to S&P 500, and investors aren’t ready for such an episode to repeat.

Major indexes had dived since the start of the year from their all-time high too.

Again, what could be some optimism?

First, market participants are pricing a high possibility for a rate hike in March. Hence, the outcome is that the Fed delivers one rate hike as anticipated, or it does not do so in the March FOMC meeting and sends a potential rally for the stock. This means that there is a larger space for the Fed to appear more dovish than having a hawkish stance on a risk-reward probability.

Moreover, a slower rate-hike pace will usher two roses to the equity market. First, it will soften the drag on the economic growth and dampen the gain seen in the 10-year treasury yield that hurts Nasdaq.

We are seeing less desire for bond investors to buy 10 year treasury yield given that short-term interest rates have been rising fast. Hence, if the short term interest rate slows in its momentum, we could see the same spell out for long term bonds yield. That’s double happiness for the stock market.

📮Our Outlook💰

Pika World believes the 10-year treasury yield is likely to march towards 2%, thus putting pressure on high growth stocks. Such expectations need not be a surprise since long-term inflation expectations are well above 2%. Logically, bond investors would demand a return higher than inflation and it is a matter of time that the 10-year treasury yield has to exceed 2% in such an anticipation path.

Nonetheless, suppose earnings growth can expand , stocks can still rise higher in 2022, and that’s the framework of thought we laid out in our previous weekend edition, where we shared that earnings growth will become the driver of the market bull trajectory.

We hope you enjoy this edition and see you in the next one!

Cheers,

Pika Nat.