How Will the Stock Market React to the Omicron Variant?

How will the stock market react to the Omicron variant?

We’re all hearing about the latest Covid variant, Omicron, in the news. Are you letting that affect your long-term investment plan?

Maybe taking a look at how the market performed last year, when Covid first became a concern, can help put things into perspective.

SPY's reaction to Covid in 2020. How will the stock market react to the Omicron variant?
SPY’s reaction to Covid in 2020. How will the stock market react to the Omicron variant?

For this chart, I’ve chosen SPY, which is a popular S&P 500 ETF. This tracks the 500 companies in the S&P 500 index.

As we can see here, when the market crashed in February of 2020, it fell about 36% over the course of a month. Then it began a steady recovery, finally reclaiming its previous high in August.

In all, this lasted about 6 months.

6 months without your investments being at the highest they’ve ever been.

Are you prepared for that?

With a long-term focus, any 6 month period soon fades away into nothing but a memory. Staying invested throughout 2020 brought major gains for investors. SPY is now up about 26% on the year, and only 3% from its all-time high.

Keep in mind that this chart likely shows a worst-case stock market scenario for a new Covid variant. In early 2020, we had almost no idea what to expect with Covid, but we’ve learned a lot since then and are better equipped to handle new variants as they arise.

The market basically shrugged off news of the Delta variant earlier this year, with barely a blip in most indexes. My guess is the reaction to Omicron will be similar. But, I can’t predict the future; and neither can anyone else.

Unless one of us finds a crystal ball, we’ll have to just wait and see how the stock market reacts to the Omicron variant.

If the thought of holding through a downturn like this makes you woozy, check out some of the books I recommend on investing psychology.

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