Since the beginning of the COVID-19 pandemic, news of infection levels, vaccine development, hospital capacity, and new variants have impacted the financial markets. Traders make moves based on their speculation of what impact the news may have on various companies on the stock market.
Due to improved vaccination efforts and public health guidelines, markets have rebounded, and stocks have been performing well in recent months. That was before news of the Omicron variant emerged.
Initial reports indicated that the new COVID-19 variant might be more severe than other previous versions. The WHO categorized it as a variant of concern, and the immediate response from the market was dumping stocks for airlines, energy, and banks holdings. Most investors shifted their portfolios into safe-haven assets, such as bonds, fearing that the Omicron variant would paralyze the global financial markets.
Now that the dust has settled, it is time to ask the question,” how will the Omicron variant affect the financial market? Let’s answer that question by looking at the market segments bound to be affected.
Contents
The Travel and Hospitality Industries
After a long period of people dreading to travel, the travel and hospitality industries were starting to make gains. Access to vaccines globally has helped many governments relax their public health guidelines to allow traveling within and beyond their borders.
Due to the uncertainty of the nature of the Omicron variant, self-preservation has pushed some governments to take drastic measures. Japan, Morocco, and Israel closed their borders and banned any foreign travelers from entering their borders. Other countries such as Australia have delayed their planned reopening plans until more information is available.
The good news is that these measures are likely to be temporary. Such decisions may be reversed once there is clarity regarding vaccine efficacy against the Omicron variant and its severity.
Even more good news is that some governments have offered assurances that their Omicron mitigation efforts do not include lockdowns or shutdowns. US president Biden noted that his government would rely on boosters, vaccinations, and more testing to curb the spread of the new variant.
This is a great time to buy stocks in these industries as most traders focused on the short term may be open to selling in anticipation that the news may get worse. The available information so far shows promise that the initial panic was an overreaction, and the variant may not be as deadly as it was initially feared.
The Health Industry
In the aftermath of the Omicron news, the CDC updated its recommendation for booster shots to include all adults. Other countries that have managed to vaccinate the majority of the adult population are bound to follow suit.
Fears surrounding the Omicron variant are about its high transmissibility levels and an ability to evade the immune responses to the body. If that happens to be the case, the immunity offered by the current versions of the COVID-19 vaccines may not be enough. The good news is that major vaccine manufacturers have expressed confidence in fast reformulation to handle the new variants.
The initial panic surrounding the variant pushed scientists to action, and we should get a clear picture by mid-December. Regardless of the results, holdings in vaccine manufacturing equipment are bound to increase in value due to the increased demand. If the news of more hospitalizations due to the Omicron variant turns out to be accurate, the value increase will extend to all health care holdings, including equipment manufacturers.
Cryptocurrencies
Due to the high-risk nature of cryptocurrencies, investors are always quick to shed them off their portfolios when significant events occur. This was the case initially, but the market rebounded quickly. On Monday 29th, Ethereum saw the biggest growth, registering a 4.6% increase in its market capitalization. Others include Bitcoin (3.4%), Cardano (3%), XRP (4.5%) and Solana (4.5%). When the initial news came out, Ethereum shot up by 6.4%, while Bitcoin saw a 5.3% increase in valuation. The long-term outlook for the cryptocurrency industry suggests stability with respect to the impact of the Omicron variant.
One piece of interesting news on the Omicron variant is the rise of an obscure digital token of the same name. On Thursday 25th, the token was trading at $65, and it rose to a high of $688 by Monday 29th. After the initial euphoria, the token’s value declined by 75%. This is the continuation of a trend where minor cryptocurrencies ride the wave of web culture or memes and manage to rise in value drastically before declining as fast as they rose.
From a scientific perspective, the Omicron variant’s 50 never seen before mutations cause serious concern. Computer predictions have analyzed the mutations and concluded that this variant would increase transmissions and immune evasion. Scientists have been quick to calm public fears by stating that more information is needed before such conclusions can be made.
The markets seem to have listened, given that the markets fell on Friday 26th November and started rebounding when trading opened on Monday 29th. This was not the case when Coronavirus was first discovered. In February 2020, it took the S&P 6 weeks to start recovering, while October of the same year saw a decline in the markets for an entire week. When news of the Delta variant came out this year, it took a few days before the markets stabilized.
While most finance markets recovered, Asian markets stumbled. The Nikkei 225 registered a 1.6% decline while Hong Kong registered 1% after Japan closed its borders. It remains to be seen whether these markets will respond to investor confidence in other markets and adjust positively.
Our Advice
We expect scientists to come up with findings that prove the Omicron variant is not as deadly as it was initially feared. Traders who hold and make strategic buying moves will be in good positions to see their portfolios grow in value once the fears about this new variant are allayed.
Vaccine manufacturers and other players in the health industry will continue to thrive given the rise in infection plus vaccine and booster shots demand. Holdings in this sector have fantastic long-term potential.
A caution to the travel and hospitality industry holdings: the impact of the travel restrictions and mass panic will lead to a decline in the valuation of the players in these industries. Ensure you balance your risk with holdings in other sectors that show growth promise.
