At first blush, the Wall Street reaction to the greatest inflation surge since 1982 (up 0.8%) was weird but we are living in wildly weird stock trading times nowadays, with interest rates historically low and staying there for the moment. And that partly explains why share players actually bought stock on the news. And get this, the yields in the bond market fell!

That doesn’t make sense unless you know the 0.8% number for November was actually lower than was thought, as was the annual reading of 6.8%.

It’s not as easy to dismiss the bond market boys and girls as dummies, as they’re seen as the smartest when it comes to ‘guessing’/forecasting the future.

Friday’s CPI “number might show the most inflation in decades, but it still came in right about as expected. This is actually a good thing, as the market has priced in higher inflation, so this could be viewed as a relief,” said Ryan Detrick, chief market strategist at LPL Financial. (CNBC)

The Fed’s reaction next week will be the next big thing for the market to wait for and watch closely.

This is ING’s take on the Fed ahead: “The economy is growing strongly and inflation pressures continue to build. The Fed is alive to the risks and is set to announce that the QE program will end in February. This then paves the way for earlier and swifter interest rate hikes, Omicron permitting, with the Fed dot plot set to point to a minimum of two moves in 2022.”

If two becomes three or more, then that could hit stocks. But recall the Fed boss Jerome Powell thinks high inflation is transitory and there were signs that some prices were waning.

CNBC again noted: “A bright spot of the CPI report was that increases in used cars, lodging, and airfares were all lower than expected,” said Detrick. “These areas have been stubbornly high and this could be one of the first signs that inflation could be nearing a peak.”

Helping to keep it positive was some early brighter news on Omicron cases in the US. “Reported cases of the Omicron variant have nearly all been mild so far, according to the director of the Centers for Disease Control and Prevention,” usnews.com reported. ‘The disease is mild,’ Dr. Rochelle Walensky told the Associated Press in an interview, noting that the data on Omicron is still limited.”

According to Walensky, reported symptoms among the 40 people in the US who have been infected with the new variant have mainly been a cough, congestion and fatigue. CDC officials have said that one person was hospitalised, but no deaths have been reported.

This sounds like a typical cold, which our medico expert Dr Ross Walker thought could end up being the reality of Omicron. It was an early call by Dr Ross and he put in some assumptions with his predictions but for health and wealth reasons let’s hope the two doctors are on the money!

To the local story and the S&P/ASX 200 was up 1.5% for the week to finish at 7353.5, which was the first ‘up’ week after four downers in a row! If you want to benchmark your portfolio performance, the Index is up around 10.7% for the year before adding dividends and franking credits.

S&P/ASX 200 Index

Here’s Bloomberg’s summary of winners and losers:

Friday’s moves were in contrast to the overall “we’re not so worried about Omicron” mood that dominated the week. Z1P lost 2.37% on Friday but popped 6% for the week. Tyro was up 2.83% for the week but gave up 0.35% on Friday.

This anti-tech/payments trend was not continued on Wall Street on Friday, so we could see some retracement next week. Mesoblast was up 10.76% for the week and even rose 1.16% on Friday, on what some reporters say was no news! However, there were good results for its Rexlemestrocel-L product for patients with chronic heart failure and low ejection fraction (HFrEF), who found the greatest benefit if they had diabetes, ischemia, or both. This was not seen as significant enough for a market reaction but some buyers liked it, or they liked something else that the market doesn’t know about. That said, this is an unreasonably volatile stock!

Fortescue was up 6.28% to $18.10 for the week, despite its CEO Elizabeth Gaines announcing she will leave her job but go onto the board and become the green hydrogen ambassador for Twiggy’s getting greener iron ore business. BHP was up 1.91% for the week to $39.96, while Rio put on 1.51% to $95.83.

To the banks and CBA was up 1.32% to $97.70, NAB 1.81% to $28.63, ANZ 2.12% to $27.47, while Westpac added a measly 0.68% to end at $20.85 after extending the buyback to February and making it look less attractive.

Worrying story of the week has been the personal issues for Hamish Douglas at Magellan Financial Group, not helped by the resignation of his CEO Brett Cairns. The share price was down 9.65% for the week but rose 0.87% on Friday. If you’re worried, the analysts see a 28.5% upside for MFG, with Morgan’s analyst the most bullish with an 88.36% upside! Two analysts are sellers but all expect the share price to rise from here but those two ‘dumpers’ only see a small lift.

What I liked

1. In October, business turnover lifted in nine out of 13 industries, according to the Australian Bureau of Statistics(ABS), which isn’t bad as we emerged out of lockdowns.
2. SEEK national job advertisements lifted 1.1% in November to be up 50% on a year ago. Record job ads were posted in Victoria, Northern Territory, Queensland, South Australia and Tasmania.
3. Reserve Bank Governor Philip Lowe said: “The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery. The economy is expected to return to its pre-Delta path in the first half of 2022.”
4. The average Aussie dwelling price hit a record $863,700 in the September quarter. The average price of residential dwellings rose $42,000 in the quarter and the number of residential dwellings is up by 44,600.
5.  US share markets advanced on Tuesday on optimism that the Omicron virus variant won’t derail global growth.
6. Evergrande is on a path to restructuring, rather than a disorderly default on its domestic Renminbi debt. Importantly, it’s only 0.1% of Chinese bank debt. Meanwhile, Beijing policymakers have moved to cushion the impact on the Chinese economy by moving towards a pro-growth stance, easing monetary policy and signalling an easing in property tightening measures. So Evergrande is unlikely to pose a major threat to either Chinese, global or Australian growth.

 What I didn’t like

• There were 294,369 births registered in Australia in 2020, down by 3.7% (or 11,463 births) from 2019, the fewest births in 13 years. Babies lead to economic growth!
• The UK FTSE index slid 0.2% after British Prime Minister Boris Johnson moved to tighten Covid-19 restrictions in an effort to prevent a spike in hospitalisations and deaths during winter.
• US share markets were mixed on Thursday as the economic threat of restrictions to control the Omicron variant mostly outweighed optimism about the efficacy of vaccines.

 What I really love – this chart!

This chart from Dr Shane Oliver, Chief Economist of AMP Capital, shows how our economy’s activity tracker (i.e. the blue line) is surging out of lockdown. And provided Omicron proves to be manageable and vaccination rates spike higher worldwide (and around the laggard states of Australia where vaccination rates are much lower than NSW and Victoria), we will see an economic boom next year. And that will underpin my optimistic calls for stocks.

The week in review:

• This week in the Switzer Report, I put two promising stocks to the test using one of the most impressive investment strategies I have ever come across. The strategy is inspired by US-based fund manager WCM in its two-part filter system to zero-in on quality stocks, namely, seeking best-of-breed businesses that are leaders in their industry and have a growing moat and if the company satisfies WCM’s culture test.
• With Christmas around the corner, Paul Rickard has put together an extensive guide for all you parents and grandparents out there considering placing a share or two in your kids’ Christmas stockings. Starting out can be a daunting process, what with all the taxation and which bank account to choose, but Paul has you covered.
• James Dunn looks at the wild west of Initial Public Offerings (IPOs), or floats, and how sometimes these stocks don’t float at all – they sink. Rather than searching for any promising up-and-coming IPOs, James presents you with three stocks that disappointed after float but show real promise to bounce back and reach their potential.
• After assessing 6 small cap takeover targets last week, Tony Featherstone followed up on Thursday with his list of 7 large cap takeover targets comprising a number of infrastructure, utility and property companies.
• In our “Hot” stocks segment this week, Raymond Chan of Morgans reveals why he holds a positive position on the BIG FOUR banks, while Michael Gable of Fairmont Equities believes James Hardie Industries (JXH) is poised for a rally, with long-term uptrends ahead.
• This week in Buy, Hold, Sell – What the Brokers Say, there were five upgrades and three downgrades in the first edition, while the second edition contained five upgrades and four downgrades, which saw Zip Co (Z1P) and Resmed (RMD) receive an upgrade while Fortescue (FMG) and Rio Tinto (RIO) copped downgrades.
• And finally, in Questions of the Week, Paul answers your questions on Platinum Asset Management (PTM), investing in Listed Investment Companies (LICs) for a 10-year-old child, Westpac’s (WBC) off-market share buyback, and whether bank hybrid securities are considered “cash equivalents”.