Should Investors Be Worried About the Omicron Variant and the Stock Market?

The omicron variant of COVID-19 has left the stock market in turmoil in recent weeks. While early data appears to show that the variant is less lethal, the prospect of borders shutting and restrictions going back in place has sent portions of the market into a tailspin. In this segment of Backstage Pass, recorded on Nov. 29, Fool contributors Jason Hall, Rachel Warren, and Toby Bordelon discuss the market's response to the news.  

Jason Hall: The omicron variant of COVID that's coming out of Africa. I guess, it was Friday on the half-day, the market closed early but fell sharply, as investors obviously were fearing the potential implications for this variant. We've learned a little bit more. We still don't really know exactly how virulent it is. What is the health risks?

Is it less deadly? Is it a milder form of the disease? We're still learning that. There are some indications maybe it's a little bit milder, but we really don't know. Rachel, I think you shared this with us, that Pershing Square Capital Management's boss, Bill Ackman, famous investor, was he on CNBC? I think, he was on CNBC.

Rachel Warren: Yeah, he was.

Hall: He might have been the first person to say it, but I've heard this from a few other times, too, that it could actually cause stocks to go up. The idea being, if this is highly contagious, if this is more contagious than the delta variant, but less dangerous, if it's a more mild form, it could become the dominant strain of this disease.

If that happens, that'd be a positive outcome because it will be closer to the flu or something like that. Investors could telegraph that and say, this is great for the global economy, and stocks could go up. I'm just going to press mute, and let Toby talk here. I think, that might be the best thing for me to do.

Toby Bordelon: Yeah. Look, I'm not actually worried about the omicron variant, maybe I should be. I'm just not that worried about it from a stock perspective, but I'm not sure that news of a less deadly variant is going to boost the market, guys. I think what people really want is news of coronavirus being over for good. I think that would boost the market, if what we're talking about is, oh, we get this variant, but it's not so bad, maybe, but I really don't see that. But I don't think this tanks by itself. I don't think this what's going to destroy the market.

I think today's movement is evidence of that. I think we finished up for the indexes today, if I'm not mistaken, maybe down a little bit. I don't remember, but it wasn't like a crash that people were worried about on Friday. Oh, my God, and then over the weekend this is going to tank everything. It turns out no, not so much, that's at least good news.

I want to say this is ultimately not going to be a big deal. Hopefully the news we get in the next couple of days is that it's not right, that the vaccines still work, that infection immunity still works, and that it's not just a huge thing for the market.

Warren: I think we're going to find a lot out in the next couple of weeks. Obviously, it takes time to collect that data to see, are people becoming severely ill? What are the mortality rates looking like? Definitely fingers crossed that all of that is a positive. I think some of this is definitely a lot of prognosticating and it makes for great headlines.

I think for sure there was obviously a lot of panic in the market on Friday. I think you see some of that leveling out today. I think part of that is you have, for example, Pfizer has come out and the CEO said they think that their new COVID pill could be very effective against omicron.

Pfizer and BioNTech are also working on a vaccine that would target this variant that would take a number of weeks to develop and then some months to test. But that could mean, if in fact this was a more concerning variant, you could have something that was available targeted within the next several months perhaps. I think that's definitely putting investors' minds a little bit at ease today.

I think there's really no way to know exactly what's going to happen here. I am very hopeful based on the data we have so far that this will not cause more severe illness and that, in fact, I think if investors see that data, could be very good for the market in that sense.

Because there's not so much the concern of global closures again, and what that could mean for global economies. I definitely think it's a bit of a wait-and-see game. I know one of the things investors are worried about is, could this potentially cause another correction, if in fact it turns out that this variant does cause more severe disease or potentially impact greater mortality outcomes. I'm not sitting worrying about the market right now. I am not changing how I'm investing based on this news.

I think that things definitely get a little rocky if in fact this is a more concerning variant. At the same time, I think that we could see potentially, like Mr. Ackman said, a real upside for stock if in fact we get more positive news.

I think the thing to do right now is wait and see, keep investing in great companies that you want to hold for the long term, and yes, sit tight as we see what comes next.

Hall: It's a slow news day, and I think it's just Ackman getting face time. [laughs] I really do, I think that's basically it.

Warren: Possibly.

Hall: That's the story. It's the week after Thanksgiving. There's not a lot going on. We're at the tail end of earnings season, CNBC's filling time, Ackman's always looking to get on TV, whatever.

I guess there's a part of me that's like, if this is something that helps the average investor who hasn't really found the power of just long-term buy-and-hold and asset position sizing and not having money you're going to need in the short term in stocks anyway. For those folks, if it helps them just hold, I love it, that's as great.

If it gets people to do the right thing for just some dumb reason, because Ackman said it, that's cool. I think the thing to remember, this is what I wanted to say, is it took me a long time to realize this, is that I don't care how specialized your knowledge is, how early you get it.

Computers have already factored it in and priced it before you could even sign into your brokerage account. Looking at these things as like trade opportunities, I think it's too easy to fall into that trap. Don't waste the time, is the way I think about it.

I'm not going to waste the time that I could be doing something productive, whether it was working on my disc golf game or like productive toward investing, reading a 10-K of a company that I thought was interesting, and then I finally now have 10 minutes I can start reading. Instead of trying to make the perfect trade on these things. I just think it's a thing and it's noise, and in theory, I guess, I get it.

I guess I get the idea that maybe this is, maybe hospitalization rates start falling, all of the positives there. People are like OK, well, I'm going to start traveling now. People that weren't traveling before, people that still haven't gone back to restaurants, gone back to bars, gone back to concerts, those things start opening up. But is that just a stock market thing or is that like a broad economic recovery thing and the world's better for it? That's just how I think about it.