I know the title of this article sounds strange right now. After all, the stock markets could be just shy of a complete meltdown right now. As I write, the FTSE 100 index is holding above the 7,000 levels by a thread. It could tumble below anytime now, as news about the omicron variant gets worse. But I am still holding out hope for three reasons.
#1. Omicron’s impact might be controlled fast
First, we do not know the extent to which we will be affected by the variant yet. Will it be as bad as the first wave of the coronavirus? Or will we be protected by vaccines? While we may not have the answers yet, so far it appears that we are far better prepared to deal with it than we were right at the start of the pandemic.
New restrictions have been put in place, and booster vaccines are expected to be administered soon. In other words, I expect that we have a far better chance of getting this variant under control than we did back in early 2020. And I think the recovery could be swift from here, putting us right back in a stock market boom as we head into 2022.
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#2. The bounce back could result in a stock market boom
Second, we now have very recent experience of what happens once the coronavirus comes under control. In the past year, we have seen a huge turnaround in stock market fortunes. The FTSE 100 index has risen more than 17% between last November and now. Before news of the variant came in, the index was almost back to pre-pandemic levels. In fact, I had even written an article speculating about whether it can rise to 7,500 by the end of the year.
And I think that if the variant fears are abated soon enough, there is still hope. For November up to yesterday’s close, the index is still up by 1.6% from the month before. This is the fastest month-on-month growth in the past six months. If the variant gets controlled, the bounce back could be strong. In fact, I believe that we might still look back at 2021 as one of a booming market, that spills over into the next year.
#3. Limited economic impact
Third, the real economic impact of the variant is probably quite small so far. As yet, only travel would have taken a hit from the latest developments. All other segments that could be impacted by the coronavirus, from non-essential retailers to banks have been untouched. And even if another lockdown were to happen, I reckon businesses are better prepared for online operation than they were during the first lockdown. So, I would expect more positive than negative news from FTSE 100 companies in the coming days and months that could buoy the markets in 2022 as well.
My takeaway
Of course it is entirely possible that the latest strain of virus turns out to be a challenging one to control, and the recovery suffers a setback. But, for now I think it would be premature to believe that. The way I see it, there is a still a strong likelihood of ending the year and beginning 2022 on a high note. With that mindset, I am buying stocks that have long been on my wish-list but were too pricey.
