Uncertainty and Pessimism Surround Emergence of the Omicron Variant

The Omicron variant will either be a major development in the Covid-19 crisis… or a blip on the ever-changing, post-pandemic screen.

Uncertainty has always plagued the global economy, from the Great Depression through to the 2016 Brexit referendum. In the weeks leading up to Brexit “decision day”, the stock market volatility index for the FTSE 100 rose 33 percent — and fell by 22 percent — in the space of a few weeks.

Although the stock market can be an indicator of overall performance, the real effects of uncertainty are shown in consumption and business outlook. When firms are unable to predict the outcome of a national decision — an election, say, or a referendum — they are risk-averse. They pull back on investment and slow down on growth.

Consumers react in a similar way. The empty supermarket aisles seen at the outset of the pandemic shows how unpredictable consumers can be when faced with uncertainty. They fill shopping baskets and clear shelves of certain items, but they hold back on expensive purchases.

When coronavirus first struck, the stock market wobbled. The crash began in late February of 2020, and throughout the month of March brokers experienced drops as high as 12 percent. Days of especially large falls spawned nicknames such as Black Monday (at 7.8 percent), Black Thursday (10 percent) and the sequel no one wanted, Black Monday II — the aforementioned 12 percent fall.

The Omicron variant could have a similar effect. If it is an aggressive strain — a possibility, according to WHO scientists — understanding the impact of previous variants will help us to better prepare for any economic fallout.

Delta is considered by many health officials to be one of the most aggressive variants, striking in India before cases were recorded in the UK or the US. When the news of Delta first broke, the stock market reacted poorly considering the steps to economic recovery that were in place. At close, the Dow Jones and the S&P 500 were down for several consecutive days in July.

The economy could react to the emergence of Omicron in a similar way. Although lockdowns have been largely avoided thus far, the very possibility means that many sectors and industries will face difficulties.

One emerging market that swiftly reacts to human impulse is that of cryptocurrency. The relatively recent phenomenon has taken the trading world, especially the younger crowd, by storm. The quick buy-and-sell nature of crypto makes it vulnerable to the whims of the masses. When people get spooked, they sell; when billionaires Tweet, they buy.

When the news of Omicron first emerged, Bitcoin — still the leading token — saw its floor implode from a steady $57,000 to $43,000. This caused a period of mass selling — with nearly every cryptocurrency experiencing a drop in value. From Ethereum to Doge, values fell — as did the value of many wallets.

The global economy is still reeling from the first wave of the pandemic. With supply suffering in every sector and industry, and inflation on the rise, it is no wonder that investors are concerned about global economic output.

Apparently anticipating the worst, the Organisation for Economic Co-operation and Development has said that — should Omicron prove to be deadly — we should expect governments to begin rolling-out support for businesses. We should also expect demand to fall, as it did at the beginning of the pandemic.

For investors, the combination of uncertainty and pessimism could plague financial markets. Decisions on buying, selling, or holding are tricky when an unpredictable factor is introduced. How those investors react in coming months will decide how we remember the Omicron variant further down the track.

By Yogesh Patel

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