Covid-19 fears reappear as threat to equity markets

Covid-19 has resurfaced as a worry for investors and a potential driver of big market moves after a new variant triggered alarm, long after the threat had receded in Wall Street’s eyes.

Worries about a new strain of the virus, named Omicron and classified by the World Health Organisation as a variant of concern, slammed markets worldwide and dealt the S&P 500 index, its biggest one-day percentage loss in nine months. The moves came a day after the US Thanksgiving holiday when thin volume likely exacerbated the moves.

With little known about the new variant, longer term implications for US assets were unclear. At least, investors said signs that the new strain is spreading and questions over its resistance to vaccines could weigh on the so-called reopening trade that has lifted markets at various times this year.

The new strain may also complicate the outlook for how aggressively the Federal Reserve normalises monetary policy to fight inflation.

“Markets were celebrating the end of the pandemic. Slam. It is not over,” said David Kotok, Chairman and Chief Investment Officer at Cumberland Advisors. “All policy issues, meaning monetary policy, business trajectories, GDP growth estimates, leisure and hospitality recovery, the list goes on, are on hold.”

The S&P 500 fell by a third as pandemic fears mushroomed in early 2020, but has more than doubled in value since then, though the pandemic’s ebb and flow has driven sometimes-violent rotations in the types of stocks investors favor. The index is up more than 22% this year.

Published in The Express Tribune, November 28^th, 2021.

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