Omicron tests the markets

Global equities were heading along calmly before being hit on Friday by concerns over a new Covid variant – Omicron.

COVID variants are obviously going to continue to occur, but markets moved due to the World Health Organisation’s (WHO) decision to label it yet another ‘variant of concern’ – due to its apparent speed of transmission so far and a few initial tests indicating it had mutated sufficiently to potentially have an improved resilience to existing vaccines.

This is the fifth ‘variant of concern’ identified so far, following Delta, Alpha, Beta and Gamma.

U.S. stocks sank by just over 2% last Friday but have since steadied.

Of course, what the markets really want to know is not about the Covid variant itself but it’s potential to impact a sufficient number of important countries (especially the U.S.) If they feel the need to re-impose mobility restrictions or lockdowns we could again see a slow down in recovery.

For this to happen, the new strain needs to be not only highly transmissible, but also vaccine resistant (which is possible, though we can’t yet be sure) and – lastly and most critically – cause severe symptoms that could quickly overwhelm hospitals.

We may learn more on the latter within days, but the history of viruses is that they usually get more transmissible but less severe over time – after all, keeping their host alive maximises their chances of surviving. Suggestions are there are only mild symptoms so far.

Either way, given we know so much about Omicron, other experts have already suggested a new more effective vaccine could be created fairly quickly (although this still leaves the problem of testing and distribution).

So far, other variants of concern have not led to new lockdowns in the U.S. – although other countries did enter new lockdowns but there was a strong relation with this and their own vaccination rates and infrastructure.

All up, while it’s still early days but given the high levels of vaccine take up in Australia, it would seem unlikely we could see further disruption to our ability to travel and work (beyond each states own agendas.)

We could see an increased push of the booster programme which is currently in operation for those who’ve been fully vaccinated for over 6 months – but I’ve seen little public health messaging promoting this and I would expect it to increase.

The market (and in turn your portfolios) will continue to have these dips when unknowns are pushed into the equation but it does not alter our long term belief that economies can and will get through this.