Written by Brenda Nakalema

Covid 19 vs The Stock Market, investors not as timid as before

This year’s thanksgiving was ruined again by yet another uninvited guest, Omicron. The new Covid variant was given the greek …

This year’s thanksgiving was ruined again by yet another uninvited guest, Omicron. The new Covid variant was given the greek letter by the World Health Organization and is expected to have more mutations than prior strains. The new strain was first diagnosed in South Africa but has already made its appearance in countries such as Hong Kong, Belgium, and Israel. Due to the fact that the strain has more mutations, it might be easier to transmit from one person to another.

The WHO said that the new variant is “of concern” and that early evidence showed it creates a higher risk of re-infection. It may take a long time to determine whether the human immune system can combat it and, if not, whether the outcomes are likely to be severe?

The new variant sent shockwaves throughout the stock market, causing the Dow Jones industrial average to drop 900 points on Friday, its worst performance in over a year. U.S crude dived 13%, and the 10-year treasury yield fell as investors flocked to havens. There seemed to be a global selloff, with the Stoxx Europe 600 index falling 3.7% and the iShares MSCI World exchange-traded fund (ticker: URTH) off by 2.2%.

According to Ryan Detrick, Chief market strategist at LPL financial, it was “sell first, ask questions later.” By 1 pm the U.S market had closed due to the holidays, but the relatively thin volume must have added to the panic.

There seems to be a Covid-era pattern of selling stocks; shares of companies that cater to the needs of stay-at-home consumers, such as Zoom Video Communications (ZM), Vaccine makers such as Moderna (MRNA) and Pfizer (PFE), rose while reopening stocks like Delta Airlines (DAL) took the plunge.

The volatility showed that it’s still Covid vs the stock market, with Covid proving it has the power to influence market moves with even greater frequency than inflation in the short term. However, while the new variant is cause for concern, it’s still too early to determine whether the current volatility is solely a result of this news or whether it will be enough to cause a financial reckoning. Massive sell activity promoted by previous variants has been seen to be short-lived.

“We’ve seen other variants that have been more fleeting,” says Keith Lerner, Co-chief investment officer at Trust Advisory services. “It complicates things, but I also think you should have some optimism that we’ve been living with this for almost two years now, and companies have adapted. I think whatever comes out of this, we have somewhat of a playbook on how to deal with it, unlike the first time.”

Despite prior experience with regard to earlier variants, or maybe because of it, governments wasted no time in restricting travel. The U.S, United Kingdom, Germany, Italy and Singapore halted flights from South Africa and nearby countries. Officials in other countries are looking into possibly doing the same, especially after the European Commission advised that countries block entry of people from recently sighted variant heavy countries.

The announcement of travel restrictions cast a dark cloud over the travel industry, with investors selling en masse. Cruise lines were hit worst of all, with Royal Caribbean (RCL) dropping 13%. The U.S Global Jets ETF (JETS) fell 7.2%. At the same time, shares of airlines focused on international travel like United Airlines (UAL), down 9.6%, a worse performance than those focused on domestic travel such as Southwest Airlines (LUV), falling 4.3%. Hotel chains were not spared, with both Hilton (HTL) and Marriott International (MAR) dropping more than 6%.

With all this happening, advisors were not rushing to recommend travel stocks, although a few noted that the selloff would present buying opportunities in other areas. The Wells Fargo Institute, for instance, advised clients that cyclical stocks like financials and industrials would be a worthy buy at the current levels.

This recent volatility proved that having some money in fixed income products and even gold has a lot of value- A safe place to wait out the financial storm while the market responds to a crisis.

There’s no telling when the world will finally overcome the Covid crisis. Still, in the meantime, investors keep looking for ways to safeguard their money and possibly grow their investments even in the midst of the crisis.