Omicron’s Market Risk Is Already Looking Overdone
Calm is returning, unless you count holiday travel stress. But the new variant’s bigger impact could be on monetary policy, with the Fed unable to resist tightening.
Welcome to Heathrow. There will be a “don’t do” list awaiting you.
Photographer: Hollie Adams/Getty
Some Thanksgiving break that was. Friday, with the U.S. markets only open in the morning as Americans digested their turkey, was the most dramatic “risk-off” day in more than a year. Not since June 2020 had U.S. stocks (represented by the SPY exchange-traded fund that tracks the S&P 500) fallen so far compared to long Treasury bonds (represented by the TLT ETF). This was a return to the old financial crisis days of “risk-on" and “risk-off” where all assets would move according to the perception of whether the environment had grown safer or more dangerous. Friday was a day when risk was off:
All readers will surely know by now that the reason for this can be summed up in one Greek letter: omicron. Thursday brought the first trickle of news stories that a new variant of Covid-19 had been identified in South Africa, while the following day brought confirmation that it had found its way into a number of European countries. There are plenty of other places to read up on this. These are the key questions as I see them, along with the state of our knowledge at present: