Why the market is not ripping even higher on the Pfizer omicron news

Published Wed, Dec 8 20219:12 AM EST

The Pfizer news is a classic case of "sell on the news." Pfizer announced that a booster shot of its COVID-19 vaccine provides increased protection against omicron. S & P 500 futures jumped 20 points at 6:45 AM on the news, from 4690 to 4710, but then fell back to 4690 a few minutes later. Why? Because the market had already anticipated the Pfizer announcement. The S & P has moved 170 points in the last two days on the belief that omicron would be manageable. If that is correct, the next couple months would see peak supply chain and inflation concerns. That implies that companies will not be battling margin erosion concerns for all of 2022. Also, If omicron is manageable, there is less concern about the Fed because the economy is still strong and it can handle modest rate increases. A strong economy is critical to understanding the market reaction. If the U.S. economy was entering a recession, and the Fed was on the cusp of a series of rate increases (even modest rate increases), the market would be much lower. How much lower? It's not clear, but every trader who has been around more than a few years knows that the great killer of bull markets is when the Fed starts raising rates. But this history is colored: It's often accompanied with the U.S. in or entering a recession. That is not happening this time around. The U.S. consumer is as strong as they have been in years. There is no recession on the horizon. That's why the S & P is trading for roughly 21 times 2022 earnings estimates, an historically high rate. It would be nowhere near that if there was any sign the economy was falling apart. And that's why stocks are holding up so well. The Fed raising rates in 2021 is not great news, but the Fed funds rate is currently at 25 basis points. If it goes up 50 basis points, or even 75 basis points, in 2022, that is still a low rate historically and something most market observers believe stocks can handle. Providing the economy holds up. So if more data backs up the Pfizer results, that's where the game will move to in 2022: How strong is the consumer?

Traders work on the floor of the New York Stock Exchange (NYSE) on December 02, 2021 in New York City.

Spencer Platt | Getty Images

The Pfizer news is a classic case of "sell on the news."