Over the past week, the Omicron variant has been dominating headlines. Concerns that it could be more contagious than the Delta variant and that current vaccines may prove less effective, have prompted several countries to re-introduce social restrictions and some have even re-closed international borders. Market anxiety has been piqued.
However, there is still significant uncertainty about Omicron's characteristics, and it will take some time before experts gain a better understanding of its potential impact.
As the world waits to learn more, investors should keep two things in mind:"
- In the United States, both federal and state governments have little appetite for new lockdowns, so Omicron is unlikely to trigger a plunge in U.S. economic activity anywhere close to the scale of March 2020.
- Even last year, after dropping sharply, markets staged an impressive rebound that's resulted in the S&P 500 soaring 98% from its COVID-low and 35% above its pre-pandemic high. The decision then, as it would be now, to move to cash and try to time the market, was the wrong one.
Market volatility will be elevated in the coming weeks as investors digest the potential implications of the Omicron variant. Against this backdrop of uncertainty and angst, portfolio diversification, particularly considering exposure to both high yield and quality assets, remains the primary tool for investors.
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