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Fears about Omicron sent shockwaves through the market in late November. Will this new variant lead to a disastrous market crash, or is it all a pointless panic?
The Omicron variant, combined with news that the Fed would tighten monetary policy, caused the S&P 500 to drop 2% in late November. Successful vaccine rollout and a loosening of stay-at-home orders and restrictions suggested that the significant pandemic fears were over. But this was a stark reminder that we are not entirely out of the woods just yet.
Omicron could alter the landscape and bring vaccine effectiveness into focus. There is a lot of guesswork happening with this new strain. Many analysts are confident the virus won’t be too infectious or severe. Others suggest a new wave could lead to opportunities, with Oil, Healthcare, Gold, and Stay-at-Home stocks set to benefit.
Market Recovery
Despite the drop in late November, the markets bounced back. Nikkei futures, particularly Oil stocks, traded well. This recovery indicates how serious Wall Street sees this variant, with early indications suggesting the S&P 500 will take these concerns in its stride.
Tech stocks rallied after the slump, repeating a pattern observed during the original lockdown. Indeed, many analysts are bullish in the long term. A recent JP Morgan note suggested that Omicron was just one “sporadic setback” on the march towards a 2022 target of 5000+.
Indeed, some analysts are already considering ways to take advantage of any slumps caused by Omicron. According to SpringOwl Asset Management, casino stocks in Macao look cheap. Additionally, Pfizer won’t know how effective their vaccine is against this strain until mid-December. If it proves effective, expect Pharma stocks to push upward.
What to Do if Omicron Gets Bad?
If the variant proves to be worse than feared, consumer stocks like Amazon and Walmart could present value.
Airlines were one area that was affected by the late November sell-off and the original COVID-19 market crash. The U.S. Global Jets ETF, American Airlines Group Inc., and Delta Air Lines Inc took a big dip when Omicron fears were announced. It’s hard to see how further travel restrictions wouldn’t damage the sector.
Of course, anyone holding reopening stocks will be looking nervously over their shoulder if lockdowns are reinstated. Uber is down almost 10%, Lyft 22%, while Expedia and Booking Holding shed approximately 10%.
Summary
Many analysts highlighted potential new variants as a hazard for the stock markets. The appearance of Omicron, a new strain, initially spooked the market. However, with early reports suggesting the variant caused ‘mild to moderate symptoms, the market has bounced back.
With ten esteemed strategists suggesting the market turmoil is over, it seems that we may be in the clear. Furthermore, it could be time to consider retail, hotel, and restaurant equities as potential big performers in 2022.
Of course, one lesson that investors should learn from the Thanksgiving week drop is that stocks are vulnerable to bad news. Omicron won’t be the only variant that emerges, so expect a few surprises next year.
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Alpesh Patel OBE