Omicron

There is always a lot of noise in the market; a lot of potential reasons to panic.

I choose to look at those “reasons to panic” instead as “reasons why people who invest tend to get rewarded” (more on this below) but it can certainly be unnerving to deal with the ups and downs.

Below is one of my favorite charts to highlight reasons to sell and why they may not have been so good (it only goes through June 2020 but you get the point).

As you can see, there are a lot of compelling reasons to jump ship along the way; with each of them seemingly less worthy in hindsight.

Everything we deal with feels —and probably is— unique, but that alone doesn’t make it worthy of a reaction.

Of course, the current thing which is causing gyrations in the market is the newest COVID variant: Omicron.

For better or worse, let’s set aside the public health implications of this and just talk about markets and the economy…

First, it’s not April 2020 anymore. With our ever-improving treatments and prophylactics for this virus, it’s fairly clear to me that the market’s reaction is more closely tied to potential government response to Omicron rather than the potential impact of Omicron on the health of people. The supply chain issues had been seeing some improvement, but now there is worry about bottlenecks forming once again. In short, will there be lockdowns, stimulus checks, and other dramatic measures or not?

Here in the US, President Biden’s messaging this week about the virus was not really any different than it had been prior to this point. His message: get vaccinated, particularly if you’re part of the vulnerable population. Notably, there has been no mention of lockdowns or economic disruption; both of which are tied to what has been a major source of disapproval within his current job rating.

Because it lacks popularity and the current administration’s approval is so low, I would argue that we’ve seen the last of the lockdowns here in this country…but I could be wrong. It may depend on which state you live in; here in AZ it will be life as usual.

With all that said, it doesn’t really matter what I think. If enough market participants get spooked for ANY reason, then stocks can move in a significant way. Contarily, if enough people suddenly feel optimistic, a continued run could occur. In the short run, it’s impossible to know what’s going to happen, but that’s okay.

Some of you might recall the months after the 9/11 attacks and how on-edge we were as a society. On at least one occasion the stock market retreated significantly due to a “suspicious package” found somewhere in New York CIty. The media seemingly dropped everything and focused on these potential threats —understandably so, people were worried. Those packages turned out to be nothing but the market’s reaction was certainly something to be felt. To me, these variants seem a little like that: something which will periodically come along and spook us all even though the primary threat is in the rearview. I would personally just throw “Omicron” up on the chart above as another Reason to Sell, I guess time will tell.

(If we put “Delta Variant” on that chart we would see that the S&P 500 index is up about 40% since the first case involving that variant.)

This morning I met with a client who said “this Omicron pullback seems to be the market’s excuse for retreating from unsustainable all-time highs.”

This isn’t inaccurate — investors do tend to look for any reason to get pessimistic after things have been good — but it got me thinking about a study I read a while back. The study explored whether stock market returns were higher after hitting an all time high,1 year, 3 years, or 5 years later.

Here’s some of that data:

The bar charts above highlight how S&P 500 returns have fared after all-time highs (the darker left bar) vs any other non all-time high level (the lighter green bar). You can see that the numbers are pretty similar regardless of whether or not a hypothetical investor would have bought after an all-time record high or waited for a dip.

Just remember, this isn’t gravity and what goes up does not necessarily have to come down. However, what goes up cannot always go up all the time, otherwise no one would ever want to sell their investments. And if no one ever sold their investments then there would be no retirees buying Pickleball paddles, no parents liquidating investments to pay for kids’ education, no financial advisors buying Christmas pajamas for his two kids, etc…. A healthy balance of fear and optimism is important for a healthy market. The lack of a “guarantee” and the presence of reasons to sell is part of the formula which can make investing a rewarding endeavor.

Lastly, remember the motives of who delivers your news. Fear and sensationalism commands attention better than sensibility and moderation, and attention is the scarce commodity everyone is after. When in doubt, remember this: there is someone out there right now sitting next to a fire or a waterfall or staring at a sunset and they have no idea how scared or enraged or concerned they need to be because they’re unplugged. We might all benefit from a little bit of that as well, especially during the holiday season.

Onward,

Adam Harding
Owner & Advisor @ Harding Wealth
www.hardingwealth.com