What are the market impacts of Omicron, the new COVID variant? - The Average Joe

    What are the market impacts of Omicron, the new COVID variant?

    Victor Lei — Head of Research

    November 30, 2021

    omicron virus

    November 30, 2021

    Those disappointed with this year’s Black Friday deals were pleasantly surprised to find stocks on sale. Last Friday, The World Health Organization declared the newly discovered COVID variant, Omicron, a “variant of concern” — sending out Delta vibes across the world. Markets sold off sharply on Friday before bouncing back Monday.

    What do we know about Omicron?

    Not much. Early research shows that the new virus spreads more easily but existing vaccines are likely to protect against severe illnesses. But countries aren’t taking any chances — reacting faster than they did to the Delta Variant:

    • The US, UK, and many others reinstated travel restrictions from certain countries, with Japan going as far as banning entry for all foreign visitors.
    • In a Monday announcement, Biden called the variant “a cause for concern, not a cause for panic”.

    Moderna (NASDAQ:MRNA) is targeting a new vaccine by early 2022 — with Pfizer to receive results on the effectiveness of its existing vaccine against Omicron within two weeks.

    But understanding the severity of Omicron could take weeks — and before then, the market could be in for a volatile time.

    What does this mean for markets?

    The general market consensus — buy the dip. As governments, health officials and businesses are handling the Omicron much better, large financial institutions advised clients to stay invested in stocks.

    • “Should there be concern? Of course. But what we saw on Friday was a significant amount of algorithm trading, not fundamental” — CEO of Adam Funds.
    • “If they [vaccines] are effective, the new strain only delays the restart, and we don’t see it changing the otherwise solid picture for equities” — Head of BlackRock Investment Institute.

    Another reason for stocks dropping so hard could’ve been due to lower trading volumes usually seen during the Friday after Thanksgiving.

    Investors: The worst-case scenario

    The markets recovered on Monday but there’s still too much we don’t know to say the worst is over. Like past variants — the markets could fall further if the virus spreads faster than expected.

    • Peter Berezin of BCA Research Inc (via Bloomberg) expects more volatility ahead, viewing the anticipated drops of over 10% as a buying opportunity.
    • In Goldman’s worst-case scenario, this variant’s severity and immunity is worse than Delta’s — hitting global growth while bringing more inflation uncertainties.

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