The delta variant narrative permeating financial media these past few weeks has spooked a whole bunch of people.
And understandably, corporate executives are no exception.
It’s difficult enough managing risk for a personal stock portfolio…
Imagine having to navigate public health and the risk of lawsuits from not only thousands of employees, but also millions of customers.
That’s the line companies like Delta Air Lines Inc. (NYSE: DAL) must toe in this “new normal” environment, where last year’s PANdemic has now become ENdemic.
Source: CNBC
On one hand, I get it. Delta has to do its part to ensure its employees are safe and healthy. And vaccinations are an important part of that process.
Otherwise, operations could become impaired, which causes customers to become irate.
But in this already inflationary world we’re forced to inhabit, if I were in their C-suite, I would’ve let the insurance company do the premium adjustment rather than become the literal face of potential conflict with my labor force.
And, moreover, I would have tied compliance to publicly available data. That way, you can at least shift any potential ire off of management and onto the general public.
But hey, what do I know… I’ve only been a management consultant for a couple decades.
The Truth Behind Delta Variant Cases
The delta variant is serious. It breaks through vaccinations at as much as a 24% rate for the Moderna version, and potentially over a 50% rate for both Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ).
But the truth about new case data is that it’s starting to look…
Better.
Source: Bloomberg
Case rates appear to have peaked on Aug. 20 and are clearly headed in the other direction.
And, frankly, if Florida would get off its butt and report more than once a week, that curve wouldn’t look anywhere near as scary.
But the Sunshine State appears to have peaked a week earlier than that, on Aug. 13.
Source: Bloomberg
And with vaccination rates now also picking up in ICU-ravaged Alabama, Mississippi and Louisiana, the economy could turn the corner relatively quickly.
Source: Bloomberg
There are some caveats that come with that statement.
First, annual GDP comparisons get harder from here on. Because of that, the economy would have to grow at a breakneck pace to bring us back to a “stonks only go up” kind of market.
Given we’re headed back to school and into fall — where aggregate demand usually declines — I don’t think that’s likely to happen.
But it is absolutely possible to slow the onset of economic slowdown.
So I’ll give you two things to watch here… One is an indicator and the other is a great trade under any circumstances.
This Dip Doesn’t Care What Delta Does
The indicator we want to watch is the small-cap-heavy Russell 2000.
If it can manage to close at a new high of 2,252 or higher this week, that might just be telling us that the “garbage trade” is back on.
If that happens, break out your green hammers, people, because things are about to get interesting…
On the other hand, it might run right up there… and then just fall back.
As such, for a trade, I’d rather buy a dip that works regardless of what the rest of the economy does.
Wednesday’s dips are pretty slim, but there is one that’s catching my eye.
Source: Bloomberg
That little red circle there is the Real Estate market, and it’s down on declining volume today.
Housing inventories are near all-time lows…
Source: Bloomberg
And that continues to inflate housing prices…
Source: Bloomberg
Although that hasn’t been deterring buyers at all…
Source: Bloomberg
And in turn, rents for recent movers are exploding, which will eventually take core inflation numbers up along with it…
Source: Macrobond, Nordea
Add all this up, and the SPDR Real Estate Select Sector ETF (NYSEArca: XLRE) is one of the best bets out there right now.
It’s trading flat-to-down toward the bottom of its recent range Wednesday, despite all of these tailwinds. So we’re making it this week’s BONUS TRADE for Fortune Research subscribers.
Source: Macrobond, Nordea
And if small caps actually do wind up taking off, there will be a lot more where this came from, folks.
Stay tuned…
All the best,
Matt Warder
