Covid-19… The Gift That Just Won’t Quit Giving: Market Commentary from Cabana’s CEO – December 1, 2021

2 months ago

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The emergence of a new coronavirus strain dubbed Omicron sent world stock markets into freefall late last week. Whether this new threat sets us back economically remains to be seen. Initial reports suggest the variant is more transmissible than Delta and is likely to be less responsive to vaccination and treatment. The good news is that the early patients experienced “very mild symptoms”. To me, that is the most important consideration of all. Treatment and vaccination are rendered largely irrelevant if the disease is overall benign. The jury is still out on all this and will likely remain so for the next two weeks as scientists around the world get their heads around it.  

We have pointed out that stocks were overbought and imbalanced internally, with fewer and fewer sectors participating in recent rallies. Markets had become increasingly volatile heading into the Thanksgiving holiday and the new Omicron variant knocked us completely off the horse on Friday in one fell swoop. After a rally attempt Monday, Federal Reserve Chairman Jerome Powell testified to Congress on Tuesday that he feels the Fed should consider accelerating its taper program despite any new threat posed by Covid. This was not well received by investors and markets immediately sold off and the major indices ended down between 1.5% and 2% for the day, thereby erasing all of November’s gains in two trading days (Friday and Tuesday). 

So, where do we go from here? There is no way to know, but I can tell you what I think. If it turns out that Omicron results in only mild illness, then I think the market will bounce straight back up and we will finish the year at all-time highs. Of course, if the vaccines and current treatments (including the soon to be approved pill) for serious illness still work, we get the same positive result. I would even go so far as to say that the Omicron variant could be a positive overall if it doesn’t cause severe illness. In that case it could produce antibodies in exposed people who then would have protection theoretically against the variants that do cause severe illness.  

Now with all of that said, if the Omicron variant does produce severe illness and proves capable of evading current vaccines and treatment, then I believe the financial markets have room to fall until new vaccines are rolled out. In such a case, I don’t see a bear market on the horizon, but a 10% correction or more is on the table.  


February 23, 2021

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