While Americans were celebrating the Thanksgiving Holiday, the rest of the world dealt with the newest Covid-19 variant. The Omicron variant of coronavirus, first identified in South Africa, has been reportedly spreading in parts of Europe for days before it was identified in southern Africa.
On December 1st, the first confirmed US case of Omicron coronavirus variant was detected in California. In a White House news briefing, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said the case was in an individual who traveled from South Africa on November 22 and tested positive for Covid-19 on November 29.
As of the end of November, the variant was already found in 20 countries, and governments around the world were already implementing lockdowns and travel restrictions.
These decisions where being driven by the fact that the Omicron variant was substantially different. With about 50 mutations from the original coronavirus, which started the pandemic, and about 30 mutations compared to even the highly contagious delta variant that has swept around the world. However, scientists don't know if the variant is actually more contagious or more deadly than any previous variants.
Many have been calling this an overaction, while others say the lockdowns and travel restrictions are adequate steps to protect others. Regardless these are difficult decisions for the politicians, and there will inevitably be those talking heads on the T.V. bashing the leaders regardless of their decisions. Part of this circus helps build fear and anxiety in most people, leading to fear and anxiety within the stock market.
The worst single day for the U.S. stock market in 2021 was Friday, November 25, the day following Thanksgiving, a shortened trading day, and of course, the day after the world found out about the new Omicron variant. The following few trading days were similarly volatile, with the market bouncing higher and then lower, despite any new real tangible information about the true nature and danger of the Omicron variant being known.
So, should this new variant be a real concern to investors?
The short answer is no if you are a long-term-oriented investor. Instead, you should ride this out just like you did when the whole pandemic started and not think twice about it.
The long answer is no if you are a long-term-oriented investor. You know that in the next year, five years, the market will likely have forgotten about the omicron variant. This will be nothing more than another blip on the chart. The long-term picture of the stock market is that it will be higher in the future.
For years we have been going through one-off moments, that at the time, seemed terrible and could bring the whole ship down underwater. But, if the pandemic has taught us nothing, it's that these events, while scary and terrible at the moment, don't stop the train.
With that all being said, this new variant could and in some ways already has affected specific industries. For example, the airline industry was hit harder after the first few trading days of knowing about Omicron than other industries like technology. In addition, most "re-opening" stocks, such as movie theaters, restaurants, airlines, cruise lines, some retail stores, obviously will be more affected if the Omicron variant is more dangerous and contagious than other variants of coronavirus that we have seen thus far during the pandemic.
While technology and the "stay at home" stocks will outperform other industries if the new variant is a 'worst-case scenario.' So, let's take a look at a few ETFs you may want to avoid and a few you may want to own if you think Omicron will be different from what we have already experienced during the pandemic.
A few I would stay away from are the U.S. Global Jets ETF (JETS), the Invesco Dynamic Leisure and Entertainment ETF (PEJ), and the ETFMG Travel Tech ETF (AWAY). These three are all heavily invested in the travel, leisure, and entertainment businesses. We have already seen the travel restrictions put in place and lockdowns in part of Europe. Some of the companies in these ETFs will and are already being hurt by these preventative measures. If the variant is worse than some expect, these companies will be hit even harder. And on the flip side, even if the variant isn't as bad as some expect it could be, due to what different governments around the world have already done, these companies will still likely see some sort of negative impact.
A few you may want to consider looking into are the Direxion Work From Home ETF (WFH), the Amplify Online Retail ETF (IBUY), and the Global X Cloud Computing ETF (CLOU). These funds all focus mainly on technology companies that will perform well if the new variant is worse than some expect and if this new variant turns out to be just the newest strain of coronavirus. This is in part because of the way the pandemic has forever changed our lives and how we work and live. Even if you believe the possibility of another nationwide lockdown will occur in the U.S., many people work differently now than in the past. Work from home is more prevalent or at the very least, working from home part-time is now very common. Furthermore, the days of business travel for one or two in-person meetings are now in large part handled with video conferencing. The world was moving towards technology playing a larger role in our lives, but the pandemic sped up that process, and these funds will all benefit from that new trend, regardless of what happens with the Omicron variant.
At the end of the day, investors need to remember that you are in this for the long term, and the day-to-day changes in the market and headlines shouldn't dictate how and where you invest.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not own shares of any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
