Real Money's Jim Collins likens the current stock market as a “puppet on a string”, with the narrative dominated by COVID-19 variants.
“The mere mention of a single Omicron case in the USA sent the markets plunging,” Collins wrote recently in Real Money. “Interactive Brokers sends me alerts when markets move more than 2%. Yesterday I received one in the morning (IWM) +2%) and then another one (IWM) -2%,) helpfully sent at 4:07 pm ET. The jump in the morning was just as puzzling as the drop in the afternoon, but, man, this market is just a puppet on a string.”
Collins noted the trading community is addicted to the narrative, and the ongoing COVID debacle is proof of that.
“It's sad – the narrative has totally replaced equity research, at least in the short term,” Collins said. “The narrative entering yesterday's trading session was that the global economy, especially in the U.S was rocking along and would produce above-average corporate earnings growth until kingdom come, Omicron be damned.”
That narrative completely ignores the deleterious impact of inflation on corporate profitability. “But just as I injured my ankle climbing up into the roof to scream that at the top of my lungs, we have one case of Omicron in the U.S., and, bam, the narrative goes the other way,” he said.
Collins is asking investors to focus on two key truths
- Stocks are more fully valued than they have been at any time in this economic cycle. The S&P 500's P/E is higher and its yield lower than at any time since the Crash of 2008.
- Winter is coming. For the Northern Hemisphere that means more seasonal ailments, and unfortunately one of them is Covid-19.
With broad-based lockdowns extremely unlikely, Collins said he would be taking profits on Zoom (ZM) - Get Zoom Video Communications, Inc. Class A Report in this and notes that Peloton (PTON) - Get Peloton Interactive, Inc. Class A Report is still a disaster. “That's not going to change because of Omicron,” he added.
“Additionally, stick with energy, be wary of stay-at-home plays and realize that in the current no-yield world (thanks, Janet and Jerome) stocks ARE bonds,” Collins said. “Not as an asset class, given the puny S&P 500 yield that I mentioned above, but there are high-yielding dividend-safe outliers in this yield-free market... Exxon Mobil (XOM) - Get Exxon Mobil Corporation Report certainly is one.”
“The best move now is to own safety,” he adds.