Here’s Why Investors Shouldn’t Panic Over Omicron
To quote Michael Corleone in The Godfather Part III: “Just when I thought I was out, they pull me back in.”
Just when we thought the pandemic was letting us out, the Omicron variant pulls us back in. But don’t panic. Below, I provide you with three simple “defensive growth” moves to protect your portfolio against COVID’s latest nasty surprise.
U.S. stocks and global oil prices plunged Tuesday, reflecting growing anxiety over Omicron and rising inflation. The main indices declined as follows: the Dow Jones Industrial Average -652.22 (-1.86%); the S&P 500 -88.27 (-1.90%); the NASDAQ -245.14 (-1.55%); and the Russell 2000 -43.07 (-1.92%). The CBOE Volatility Index (VIX), aka “fear index,” soared roughly 23%.
European and Asian indices have been tumbling as well, as the Omicron outbreak continues to afflict major countries overseas and prompts selective travel restrictions.
The Omicron mutation has been detected in South Africa and several European countries, including the United Kingdom, Germany, Spain, and Italy. Cases of the variant also have popped up in China, Hong Kong, Australia, and Israel. Public health officials assert that it’s only a matter of time before Omicron hits America.
But equities started the month of December on an auspicious note. In pre-market futures contracts Wednesday, U.S. stocks were poised to open sharply higher, as the focus returned to economic growth. Global stocks were rebounding as well.
The bull case remains in place. But brace yourself for further volatility, as COVID’s mutations whipsaw investors from horror to hope and back again.
Powell’s somber tone…
Casting a pall over the markets are the latest remarks from Federal Reserve Chair Jerome Powell. In testimony to Congress on Tuesday, Powell said risks of worsening inflation have risen and the central bank would need to accelerate its tapering of asset purchases.
Investors have been fleeing to safe haven assets. As of this writing, the yield on the benchmark 10-year Treasury note had fallen to 1.48%. Bond yields and prices move in opposite directions.
There’s much we don’t know about Omicron, including the severity of symptoms, its level of contagiousness, and the efficacy of any future vaccines in combating it.
Omicron has made the global race for full vaccination all the more urgent. As the following chart shows, national vaccination rates are uneven:
In the coming days, epidemiological research should give us a clearer picture of the Omicron threat and how to address it. But unless the variant explodes out of control, Wall Street eventually can return its attention to favorable underlying investment conditions.
A re-imposition of lockdowns in America is a political impossibility. Economic growth remains strong, as do corporate operating results. Home prices are surging (which enhances the consumer’s overall “wealth effect”), and retail sales are breaking records. Rising inflation is a worry, but it’s also a sign that the economy is moving forward.
The upshot: Don’t overreact to scary headlines by selling good stocks. If your portfolio is properly diversified, you can ride out the turbulence. Stick to your long-term goals.
The Delta variant eventually faded, largely thanks to aggressive vaccination campaigns. The same is likely to happen with Omicron and when it does, the rally will get the catalyst it needs to continue into 2022.
Moves to make now…
You can still make money in this market, while also protecting your portfolio on the downside. Here are three simple steps to take now:
#1: Increase your exposure to high-yield dividend stocks, which provide the trifecta of safety, income and growth. Companies with the financial wherewithal to provide robust dividends are inherently strong enough to weather temporary storms. For the best high-yielders, consult our “dividend map.”
#2: Tap into megatrends with multi-year momentum. One such trend is the global implementation of 5G wireless technology. The super-fast speed of 5G will expedite the Internet of Things and other tech wonders. We’ve put together a presentation on investment opportunities in 5G wireless. Click here for the full report.
#3: Increase your exposure to commodities. Infrastructure spending and the shift to green technologies are tailwinds for commodities producers. Raw materials also historically outperform during periods of rising inflation. For details about our favorite commodities play, click here.
Questions about crisis investing? Send me an email: email@example.com.
John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link.