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How the Omicron Variant Could Impact Your Investments

If the Omicron variant of the coronavirus has you worrying about your investment portfolio, you’re probably not alone.

The World Health Organization (WHO) says the new variant, which was first detected in South Africa in November, is likely to spread internationally and poses a “very high” global risk. That could mean future surges of COVID-19, with “severe consequences” in some areas, the WHO said in a brief.

As we’ve seen in the past, surging COVID-19 cases can impact the market. When the virus first hit the U.S. in March of 2020, the S&P 500 — a benchmark commonly used to measure the strength of the overall stock market — dropped more than 30% between February and March. Since then, there has been a close relationship between which investments do well across all financial markets and whether virus cases are trending up or down. (For example, “defensive stocks” like water, gas and electric utilities tend to do well when cases are rising, since investors move towards investments with less market volatility during uncertain times.)

On Friday, the Dow Jones Industrial Average had its worst day of the year as investors, and the S&P 500 and Nasdaq Composite slipped as investors got spooked by the Omicron variant. While stocks rebounded Monday, there’s no way to say for sure how much the new variant will continue to impact the market.

The omicron variant has also led to travel restrictions. The U.S. has banned entry for travelers from eight African countries.

What experts are saying

There is no way to predict what the market will do in the face of the new variant, but because experts have seen surging in COVID-19 cases in the past, including the Delta variant that was detected earlier this year, they can make predictions.

Sam Stovall, chief investment strategist at the investment research firm CFRA Research, wrote in a research note Monday reminding investors that the severity of the new coronavirus variant could take weeks to assess. That said, the groups likely to be hit hardest include airlines, hotels, restaurants and leisure facilities in general, he wrote. There may also be some sectors that benefit in the near-term, like online retailers, food delivery firms and remote communications companies, Stovall says.

Economists at Morgan Stanley say the new strain posed “a near-term risk” to their view of how the market could do in Asia, CNN reported. But since a larger share of the population is vaccinated compared to mid-2021, Omicron could have less of an impact on the market than Delta did.

In a note to clients on Monday morning, Bespoke Investment Group wrote, “Only history will tell if this new Omicron strain of COVID ends up being a major market event or not, but our view is that it doesn’t.”

What you should do

As hard as it can be, oftentimes the best thing to do to your investment portfolio during a volatile market is nothing.

While the average 401(k) balance shrank by 19% in the first quarter of 2020, according to Fidelity Investments, those who pulled their money out of the market during that time missed out on a fast bull market rebound. (If you had invested in stocks when the market crashed in March 2020, you could have doubled your money by August of 2021.)

Overall, missing the market’s best 10 days over the last two decades would have cut your overall return by more than half, according to J.P. Morgan Asset Management’s 2021 guide to retirement. While the return on a $10,000 investment would have been $42,231 for an investor fully invested, it drops to $19,347 for an investor who missed those key 10 days.

So, though it may be tempting, try not to get spooked by this latest news. Remember, markets can be volatile, but a well-diversified portfolio and a long-term investing plan is the surest way to weather the storm.

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