The Market Shrugs Off Omicron

By Nicholas Jasinski |  Thursday, December 23 Very Merry. Santa Claus came early to Wall Street, delivering a record high for the S&P 500 today. An easing of pandemic fears and stronger economic data drove the gains. The S&P 500 rose 0.6%, to 4,725.8,  its first all-time high close since Dec. 10. The Dow Jones Industrial Average added 0.6%, and the Nasdaq Composite gained 0.8%. All three indexes finished the holiday-shortened week with solid gains. U.S. stock markets will be closed tomorrow in observance of Christmas. The latest Omicron headlines have been a net positive for stocks. A study from the University of Edinburgh and another from the Imperial College London found that while the coronavirus variant was more infectious, it was less severe than earlier versions. Also, researchers at South Africa’s National Institute for Communicable Diseases found people were 70% to 80% less likely to be hospitalized if infected with the new strain. Plus, add to that the Food and Drug Administration giving thumbs up to a pair of antiviral pills from Pfizer and Merck this week, and suddenly investors are willing to look past the Omicron wave of Covid-19. There’s still plenty to keep investors up at night, but it won't be the pandemic this Christmas. I write in this weekend's issue of Barron's: Omicron may still inspire changes in consumer and business behavior without official restrictions. Travel plans, large events, in-person shopping, and holiday family gatherings are being canceled or postponed. That will show up in monthly economic data and may be felt by airlines, retailers, and other affected industries. But investors shouldn’t overreact by selling out of those stocks, either. Each wave of the pandemic has brought temporary disruptions for the most in-person businesses, followed by a rapid recovery on the other side. 'One lesson of the past two years is that the rebound is very, very powerful and quick,' says Charles Lemonides, CIO of the New York-based hedge fund ValueWorks. 'These companies have already shown more than once that they’re going to survive.' And the recovery on the other side can be potent. 'Another lesson is that stuff doesn’t simply come back to the base level. Pent-up demand just torques the upside to overshoot the base level,' Lemonides says. 'I think it’s silly to shy away from these companies today because you think they’ll trade lower if we go into the most negative lockdown scenario, because you’ll miss that bounce.' Federal Reserve policy and the path of corporate earnings will determine stock performance in 2022, not the latest chapter in the Covid-19 pandemic. There is the risk of the Omicron wave pushing already hot inflation even higher, forcing the Fed to tighten policy earlier or more forcefully than currently expected. But the shift will be in the same direction, and investors already know to prepare for higher benchmark interest rates in 2022. Read more on how to navigate that from our 2022 Outlook issue. And read the latest on Omicron's implications for markets in this weekend's issue. Review & Preview will be off tomorrow for the Christmas holiday, back on Monday. Have a merry Christmas!    Watch our TV show on Fox Business at special times this week, Friday at 7 a.m. or 8:30 a.m. ET; or Sunday at 10 a.m. or 11:30 a.m. ET. This week, see an interview with John Doerr, chairman of venture capital firm Kleiner Perkins.

 

DJIA: +0.55% to 35,950.56 S&P 500: +0.62% to 4,725.79 Nasdaq: +0.85% to 15,653.37 The Hot Stock: Tesla +5.8% The Biggest Loser: Coterra Energy -1.8% Best Sector:  Consumer Discretionary +1.5% Worst Sector: Real Estate -0.2%