We have had some fairly choppy intra-day moves this week as coronavirus headlines yo-yoed global equity markets.
However, interestingly, we believe that most Omicron scenarios could ultimately result in higher global equity markets!
For example, if as it currently appears, Omicron has milder symptoms and the existing vaccines are effective, then the global recovery should remain on track, which is positive for global equity markets. However, on the flip side, if Omicron turns out to be deadlier and needs new vaccines, then we are likely to see economic contraction and disinflation being countered by fiscal and monetary stimulus, which is also positive for global equity markets.
Unfortunately, the path for global equities is never this simple, smooth or easy – and as we have previously said because equity markets hate uncertainty (and as there is no getting away from the fact that we don’t yet know much about this new variant), financial markets will continue to trade on every news headline.
As such, over the coming weeks until we know more about the Omicron variant, we are very likely to continue to take two steps forward and one step back as equity market volatility is likely to remain elevated.