November 30, 2021

I hope everyone had a wonderful Thanksgiving. Financial markets tend to be relatively quiet the day after Thanksgiving, but this year was a notable exception. The markets were caught off-guard by the discovery of a new variant on Thanksgiving Day. It was equally unnerving due to the global leader’s quick response to shut down borders and ban flights to certain countries. Markets typically assume the worst in such situations. Ultimately, we expect the markets to digest the reality of the new variant similar to the Delta variant and eventually continue their climb higher. Here is what we know so far:

What we know so far about the Omicron variant

The new variant was discovered in South Africa on Thursday and a day later the WHO named it a ‘variant of concern.’

· Stocks had their worst day in months, with the S&P 500 down the most since February 2021 and it was the worst day for the Dow since October 2020.

· It was anything but a Black Friday, as stocks had their worst Black Friday returns ever as well.

· Crude oil fell 13.1%, for its largest drop since April 2020.

· The U.S. ordered travel restrictions from South Africa and seven other countries, while Israel banned international travelers from entry and Japan closed borders to new visitors as well.

· Moderna thinks it could develop a new vaccine to fight the new variant by early 2022.

The new variant appears to be highly transmissible, but we don’t know about the symptoms yet. What if they aren’t as serious as feared? Additionally, will existing vaccines work, or has it mutated enough that they won’t? We will continue watching all the data, but at this time, there are more questions than answers and we could still be weeks away from solid answers.

Omicron news may be market moving for at least the next several weeks

· Markets don’t like uncertainty, and while little is known about the actual threat the Omicron variant poses, the uncertainty will be enough to keep markets on alert.

· Moderna’s CEO said current vaccinations may not be as effective against Omicron and the timeline for an Omicron-focused booster may take months, disappointing some expectations.

· Federal Reserve Chair Jerome Powell will testify before Congress today and the prospective policy impact of Omicron will likely take center stage.

· Given advances, the impact of Omicron may be similar to Delta with a bias toward a smaller impact for now.

· The broad downside risk (not our base case) would be an impact somewhat worse than Delta, but still meaningfully less severe than the initial wave of COVID.

Conclusion

Our initial reaction is that the impact of Omicron on the financial markets will be less than the Delta variant. However, the uncertainty will continue to cause short-term volatility in the markets until more questions are answered. The timing is somewhat concerning as we head into the peak of the holiday shopping season and will be something to monitor as we expected more people to shop in person this year than last. We still expect a very robust online shopping season despite the supply and logistic issues. We will continue to monitor the new variant and keep you updated as always. For now, we believe this will be another unfortunate delay in the economic recovery from COVID but not a roadblock. Typically, uncertainty and market volatility create opportunities – the Omicron may provide opportunities as well.

As always stay safe and please feel free to give us a call if you have any questions. Happy Holidays!