When the first Omicron case was identified in the USA this week, selling of stocks moved into high gear on Wall Street. Stocks had been sharply higher but began to lose the gains once Fed Reserve Chair Powell restated that a faster Fed taper will be discussed at the upcoming meeting. The report of an Omicron variant case in California drove stocks down sharply into the close.  Tech stocks especially were exceptionally weak. In terms of developments about Omicron, we’re still in a waiting game for some concrete stats, but there was positive news early on from the WHO chief scientist, who said that they think vaccines “will still protect against severe disease as they have against the other variants”.  On the other hand, there was further negative news from South Africa as the country reported over 8500 infections over a previous day’s numbers.

Growth has been the big loser — so far. The Nasdaq has fared the worst among the major indexes in this selloff. Here’s one reason perhaps for the extreme market reaction to the report of ONE case in California. While many people were assuming that it would show up in the US…eventually, stocks have relatively high valuations, and some investors may have been looking for an excuse to sell and preserve profits.

When compared to the market action to the other COVID waves and the Delta variant, what’s different this time is there is NOT a flight to big tech stocks. This is indeed a growth-based drop which looks a bit like a panic (or it did earlier in the week). If we get better news this may actually be more of an opportune entry point.  We shall see.

Ron’s Market Minute — Minute by Minute
At this minute, it is difficult to predict short-term action. Unsurprisingly, much of the high-frequency data that traders like to watch for short-term trends is incongruent.  We have a Vix Index (volatility index) that closed above 30 this week.  (‘Normal’ is around 12-15) which makes predictions about impossible.  Has the fear run its course?  Likely not.

We don’t have a whole lot of information about the new Omicron variant. As more news surfaces, we could see significant moves in either direction. What makes short-term trading especially unpredictable is that news can hit at any random time in the day, possibly while the markets are open. Keep in mind it is the nature of people and especially journalists, to react more to bad news than good news — even when the amount and significance of the good news is actually greater. And that could turn a nice ‘rally day’ into one where suddenly the carpet gets pulled out from under it. That is exactly what happened just two days ago. 

The Omicron development may, or may not, prove to be a crisis. Should it prove to be, we believe it will be a healthcare crisis, not a financial one. Therefore, in my opinion, it’s not something that would be particularly troublesome from a longer-term perspective. But in the short-term?  Well, anything goes right now – very literally. For the short-term trader the risks are very high right now. The POTENTIAL reward of timing a bottom perfectly is huge, but a timing failure could be quite costly. Those kinds of swings result in emotional trades which we try to avoid at all costs, as they almost always result in trading losses. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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