Risk sentiment attempted to stabilize Monday following a grievous Friday rout on Wall Street, but the angst remained palpable.
A weekend chock-full of soundbites from doctors, epidemiologists and infectious disease experts, produced little in the way of consensus. Some suggested symptoms from the new variant were “mild” so far, while others warned it was simply too early — that opinions, no matter how informed, are mere conjecture.
As for proliferating travel bans, one headline summed up the situation: “Omicron Has Reached From Australia to Canada Despite Curbs.”
Japan closed its borders and Singapore adopted a series of precautions. Omicron cases were confirmed or suspected in Austria, Belgium, France, Germany, Italy, the Netherlands, Switzerland and the UK, among others.
In a technical brief, WHO warned that “given mutations that may confer immune escape potential and possibly transmissibility advantage, the likelihood of potential further spread of Omicron at the global level is high.” “There could be future surges of COVID-19, which could have severe consequences, depending on a number of factors including where surges may take place,” the brief said.
That could apply to markets in general: “There could be” developments in the “future” that may have “severe consequences, depending on a number of factors.”
Shares of Moderna rose double-digits in early trading as investors cheered comments suggesting the company could have a new vaccine ready by early next year.
European travel and leisure stocks, among the hardest-hit globally during Friday’s rout, recovered a bit after Morgan Stanley and at least one other big bank said the selloff was overdone.
Monday’s advance, around 3% in early trading, was less than half of Friday’s dramatic selloff (figure above).
More broadly, European shares were on track for solid gains. Mideast shares likewise rebounded from Sunday’s slide, but the rally felt tenuous.
In Asia, markets played catch up to Wall Street’s Black Friday collapse. The Hang Seng’s 1% loss took city shares to the lowest since October 2020 (figure below). Meituan was crushed after reporting lackluster results.
Obviously, Omicron isn’t the only headwind for Hong Kong shares. Beijing’s regulatory blitz is ongoing as is China’s property meltdown.
Strategists, analysts and market participants more generally, expressed divergent opinions on the outlook. Most were relatively constructive — and I emphasize “relatively.”
“This is not March of 2020 when there was almost no information, no treatments and no vaccines,” JonesTrading’s Mike O’Rourke said. “Society has made remarkable progress versus the virus since the early days of the pandemic,” he added, on the way to suggesting that at least when it comes to bonds and crude, “investors should take the other side of Friday’s moves.”
He didn’t reserve the same enthusiasm for equities, especially not richly-valued, hyper-growth shares. “The big rally in the pandemic plays serves as an opportunity for trapped investors to get out,” O’Rourke wrote. “Collectively, the group was awarded multiples that will take years and, in some cases, decades, to grow into.”
“Despite the irresistible pull of buying the dip on tenuous early information on Omicron, we’re just one negative headline away from going back to where we started,” an analyst at Oanda cautioned. One assumes he didn’t mean back to March 2020. We’re not going back there.
Wells Fargo’s Chris Harvey, by contrast, reckoned the rally is merely on hold. Investors, he said, should stay patient. “Our melt-up scenario is on pause for now, but we aren’t abandoning it,” the bank remarked.
