Wall Street rebounds after Friday's omicron panic

Stocks that were the hardest hit on Friday rallied the most on Monday.

Markets steadied on Monday as investors took stock of the news surrounding the new omicron variant of Covid-19 that 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 905 points, or 2.5 percent. The broad-based S&P 500 fell by 2.3 percent and the tech-dominated Nasdaq dropped 2.2 percent. 

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

The S&P rose as much as 1.5 percent on Monday, with investors seemingly reassured by President Joe Biden’s remarks, which continued to emphasize the importance of vaccination and boosters. “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.  

Investors were soothed by Biden's comment that omicron “is a cause for concern, not a cause for panic.”

Market observers said much of Friday’s plunge was sentiment-driven rather than grounded in data. “This was more of an emotional day than anything else,” said Mitchell Goldberg, president of ClientFirst Strategy. “There are so many short-term craters in the market that have popped up since the pandemic… Investors are just hyper-sensitive 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, managing partner for Cornerstone Wealth.

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

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 added. “Friday, the catalyst was again Covid… The new variant was just a reason for investors to run to the exits.” 

Friday’s rout was magnified by technical factors, said Keith Buchanan, portfolio manager at Globalt Investments. The combination of a post-holiday lull in volume as well as 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 omicron coming so fast ahead of a weekend, Buchanan said investors were facing 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 during which 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.” 

In the coming weeks, experts predicted that the market is likely to display more volatility, and said investors should focus on their long-term goals. 

For retail investors and retirement savers, the professionals say the message is two-fold: Don’t panic, but consider this a good opportunity to evaluate your investment allocation and see if it aligns with your risk tolerance and 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?”  

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

In the coming weeks, experts predicted that the market is likely to display more volatility, and said 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,” Bassuk said. “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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