For investors, alongside the rest of us, there are still more questions than answers when it comes to the troubling Omicron variant of coronavirus. The chief uncertainty is over the epidemiological behaviour of the strand — whether it is more transmissible but less lethal, for example or has a much greater resistance to vaccines. The response of consumers and politicians is also not yet obvious: it could, in extremis, prompt a repeat of lockdown policies or lead to a resumption of voluntary social distancing.
That the strain, first sequenced in South Africa, appears to spread more easily was enough to send markets plunging on Friday — aided by the lack of liquidity in US markets that were still recovering from Thanksgiving. Heightened uncertainty over the path of the recovery, inflation and monetary policy helped contribute to the general risk-off attitude. Stocks that did well during lockdowns — such as ecommerce, streaming services and video conferencing — rallied while those more vulnerable to restrictions such as airlines and hospitality fell.
The collapse may be overdone. A similar market wobble in August, brought on by the spread of the more contagious Delta variant in the US, was swiftly reversed after investors were reassured that vaccines remained effective and deaths would be more limited than during previous waves. Even in spring 2020, during the depths of the most acute part of the crisis, markets quickly rallied, even if the most lockdown-vulnerable stocks did not, as the potential of the fast-growing tech sector to continue to thrive and the scale of monetary stimulus became clear.