Inflation concerns and how it could prompt the Fed to change in today's monetary policy meeting hit major U.S. equity indices for the past two days, as they closed in the red and particularly hard-hit were the high-flyers, price-to-sales stocks. The tech heavy Nasdaq Composite which has those high-flyers was the hardest hit, falling 1.1%, the small-cap Russell 2000 dropped 1.0%, the S&P 500 lost 0.8%, and the Dow fell 0.3%. Also weighing on stocks was the continued spread of the Omicron variant and renewed restrictive efforts to contain it. Yesterday the World Health Organization (WHO) warned the new Covid-19 Omicron variant is spreading faster than any previous strain, and it is probably present in most countries of the world.

As we move into today, there are several items that will shape how market's end the day. In its weekly epidemiological update, the WHO said more data was needed to better understand the extent to which Omicron may evade immunity derived from either vaccines or previous infection. Even though we continue to receive reports that point to vaccines plus boosters warding off Omicron, we suspect this latest missive from the WHO, paired with rising case counts and containment efforts, will likely win out in the near term.

Federal Reserve FOMC Meeting Concluding Today At 2:00PM

However, we believe the omicron news gets second seat, as attention will shift to the main event of December - the outcome of the Fed's latest monetary policy meeting (FOMC meeting) at which it is widely expected to announce a faster pace for its bond tapering compared to its original plan shared in early November. That was confirmed by the hotter than expected November PPI report published yesterday that came in at 9.6% year over year vs. the expected 9.2% print, and October's 8.6% reading. The Core PPI (which excludes food, energy, and trade services) was also higher than the expected, hitting 7.7% YoY in November, up from October's 6.9%. 

The question many are looking to be answered exiting that meeting is how much faster will the Fed taper vs. the plan it shared in early November?

Some survey findings suggest the Fed could double its initial pace, which translates into $30 billion a month, a cadence that could mean ending the program as soon as March. The two other items that investors and economists alike will be reviewing are the Fed's latest economic dot plot, which will showcase not only the Fed's latest GDP forecast but also hints as to what is likely to happen on the interest rate hike front in 2022. Current expectations call for two such hikes - this afternoon we'll see if that remains unchanged or if it's looking more like three. If the latter is the case, we could see the recent market pressure continue as the realization of that likelihood is digested.

In terms of our market outlook, we are still in the camp of a Santa Claus rally, and we believe that if the Fed does not announce anything unexpected (we laid out the expected for you, you can also read more here) the market will rally after the event gets out of the way.

Eli Lilly's Investor Day

And here are some key news about a big healthcare stock in our portfolio, Eli Lilly. See company's statement.

Eli Lilly raised its full-year 2021 profit and sales expectations on Wednesday, helped partly by a recent U.S. government contract for its COVID-19 antibody treatment. The U.S. government had bought 388,000 additional doses of Lilly's antibody therapy in September, when infections surged due to the fast-spreading Delta variant; we expect this to continue "thanks to" the Omicron variant, although company didn't comment on this. The company said it now expected COVID-19 therapies to bring in about $2.1 billion in sales in 2021, up from an earlier forecast of $1.3 billion.

Thanks to that, Lilly now expects adjusted earnings per share to between $8.15 and $8.20, up from an earlier range of between $7.95 and $8.05. The company said it expects 2021 revenue to be in the range of $28.0 billion to $28.3 billion, compared with its previous forecast of $27.2 billion to $27.6 billion. 

For 2022, Lilly expects revenue to be between $27.8 billion and $28.3 billion, with key growth products driving two-thirds of core business revenue, excluding COVID-19 therapies; expects operating margin to be approximately 30 percent on a reported basis and approximately 32 percent on a non-GAAP basis, and expects earnings per share (EPS) to be in the range of $8.00 to $8.15 on a reported basis and $8.50 to $8.65 on a non-GAAP basis.

The raise in forecasted 2022 EPS will help us as investors to value the stock. With the current stock price ($260) and the given 2022 EPS, LLY is trading at 32.5x forward earnings. This is lower to its own recent forward multiple of 50x. We have a stock that has significantly gotten cheaper (on the forward earnings multiple front), so we're very comfortable owning LLY at this level and will not sell until significantly higher.