Wall Street rebounds after Friday’s omicron panic

·4 min read

Markets steadied Monday as investors took stock of the news about the new omicron variant of the coronavirus, which sent shock waves through public health organizations and governments last week.

Wall Street reclaimed some of the ground it lost on Friday, when all three of the major indices plunged by more than 2 percent. The Dow Jones Industrial Average had its worst day of the year, falling by 905 points, or 2.5 percent. The broad-based S&P 500 fell by 2.3 percent, and the tech-dominated Nasdaq dropped by 2.2 percent.

“Friday confirmed for us that Covid is still the investor narrative,” said Greg Bassuk, the CEO of AXS Investments. “Up until last month or two, we were seeing a lot of strength in the market,” with strong corporate earnings and predictions of a robust holiday spending season.

The S&P rose by as much as 1.5 percent Monday as investors seemed to be reassured by President Joe Biden’s remarks, which continued to emphasize the importance of vaccinations and booster shots. “The variant is a cause for concern, not a cause for panic,” he said, adding that he did not expect to reinstate lockdowns in response to the emergence of the omicron variant.

Market observers said much of Friday’s plunge was driven by sentiment rather than grounded in data. “This was more of an emotional day than anything else,” said Mitchell Goldberg, the president of ClientFirst Strategy. “There are so many short-term craters in the market that have popped up since the pandemic. ... Investors are just hypersensitive to every bit of news that comes out.”

Some noted that, with stocks as expensive as they are, valuation ratios have become stretched, and concerns about asset bubbles suggested that a correction had been waiting in the wings. “The growth drivers may be waning, especially with everything that’s happening,” said Jeff Carbone, the managing partner of Cornerstone Wealth.

Darren Schuringa, the CEO of ASYMmetric ETFs, said, “It’s looking for a catalyst.”

As has been the case for much of the time since March 2020, the virus remains “the dominant factor determining the course of the economic recovery,” Schuringa said. “Friday, the catalyst was again Covid. ... The new variant was just a reason for investors to run to the exits.”

Technical factors magnified Friday’s rout, said Keith Buchanan, a portfolio manager at Globalt Investments. The combination of a post-holiday lull in volume and a shortened trading day amplified the impact of rushed selling.

“It’s traditionally a lower-volume day, so there was a mad dash to a small exit,” he said. With the news about the omicron variant’s coming so soon ahead of a weekend, Buchanan said, investors faced the prospect of being overexposed to any impending bad news.

“The news flow on the virus doesn’t stop on the weekend, so if you have a shortened trading day and perhaps you have more risk than you’re comfortable holding, I think that also contributed,” he said.

Since the start of the pandemic, there have been periods when economic recovery seemed to be gaining momentum, only to stall with the emergence of a new mutation. Buchanan said it was unsurprising that investors initially feared the worst.

“The last variant of concern was delta, and delta obviously had a tremendous human toll,” he said. “Psychologically, the worst-case scenario is that we go back in time and people just disengage from the economy.”

For retail investors and retirement savers, the professionals say, the message is twofold: Don’t panic, but consider this a good opportunity to evaluate your investment allocation and see whether it aligns with your risk tolerance and your wealth-building timeline.

“Retail investors have taken on more risk in search of income,” Schuringa said. “I think the takeaway for average savers is they have to ask themselves, how can I de-risk my portfolio?”

Warning that trying to time the market or trading according to day-to-day news cycles can lead to big losses, Goldberg said: “Most of the time, investors are best off just staying the course. I think some of the fear factor is still lingering. We’re living on a minute-to-minute basis. It’s really the worst way to make decisions.”

Experts said the market is likely to display more volatility in the coming weeks and that investors should focus on their long-term goals.

“As we move into 2022, we’re very bullish on the economic reopening ... but in the immediate term, we anticipate a period of volatility until there’s greater certainty with respect to the variant,” said Bassuk of AXS. “We’re seeing that investors are really looking for that market compass to land in a clear direction. There’s still a lot of uncertainty, and it continues to be driven by more questions than answers.”

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