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Don’t Give Into Knee Jerk Reactions
Our main story covers the current Omicron variant outbreak.
While markets initially faltered in the wake of the news, we felt that fears were overblown.
Yes, things are getting worse. But acting without understanding the economic impact is not the way to invest.
Ironically, if Covid dampens demand, that would help inflationary pressures, something we could use right now as long as it doesn’t go too far.
Despite the rapid spread of the variant, countries aren’t interested in new lockdown measures.
While they want to keep hospitals from overflowing, the general sense is we’ll be living with Covid for years.
And as long as lockdowns are off the table, we shouldn’t expect too much economic contraction.
At the present moment, it’s best to wait and see how things play out over the next several weeks.
Markets struggled to price in the Omicron Covid variant, now the dominant strain spreading across the globe.
In the US, it accounted for 73% of new cases between Dec. 12-18.
Hospitals Under Pressure
Several states including Ohio, Maryland, Massachusetts, and New York activated the National Guard to support understaffed hospitals as cases surge.
The goal is to ensure that hospitals have sufficient capacity to handle both Covid and non-covid cases.
Total cases in the US rose dramatically in the last few weeks as more patients contracted the latest variant.
Source: The Wall Street Journal
President Biden directed the Federal Emergency Management Agency to assess the needs of hospitals and start expanding capacity. Additionally, FEMA will prepare to deploy ambulances and medical teams to shuttle patients between facilities as needed.
The administration also plans to deliver 500 million at-home Covid testing kits as well as setting up federal testing sites.
Is Christmas Cancelled?
Across the US, live shows canceled or removed live audiences to reduce the spread of Covid including the famed Radio City Christmas Spectacular.
While mask mandates continue to be spotty, neither the president nor most governors expect to implement lockdowns.
How’s Everyone Doing?
Across the pond, the UK struggles to manage rising cases but refuses to implement new lockdown measures.
The rest of Europe began to shut off British residents in the hopes of curtailing the spread in their countries.
Denmark is closing large gathering venues such as theaters and stadiums while the Netherlands locked down the country until the first week of January.
One Bright Spot
South Africa, where the Omicron variant is thought to have originated, saw new cases plunge in the last two weeks.
The Bottom Line: As long as lockdowns remain few and far between, we don’t expect economies to slow.
If anything, the rise in cases might reduce demand at the margins which could alleviate some of the supply chain congestion we’re seeing.
While more transmissive, this variant is having less of an impact as vaccines, though not as effective, have shown to reduce the severity of the illness.
For now, we don’t see any reason to rearrange our portfolios because of Omicron.
However, we do think it creates near-term pressure on travel-related stocks such as Delta Airlines (DAL), Carnival Cruiselines (CCL), and the like.