What latest Covid curveball means for investors

Trader on the floor of the New York Stock Exchange. Picture: Bryan R. Smith / AFP

So, was Omicron just a one-day – in the case of the Australian market, perhaps a one-and-a-half day - wonder, so far at least as investors are concerned?

With Wall St futures pointing to a bounce back coming up overnight Monday after Friday’s near-1000 point plunge in the Dow, it looked like investors had essentially concluded we were not headed for Covid Chaos 2.0, on the basis of those reports of “mild symptoms and outcomes”.

Clearly, it’s too soon to say.

We’ve seen more than a few ‘false dawns’ over the past two years.

Victoria indeed, had its own two very special ‘Chairman Dan false Delta dawns’.

I suggest there was another powerful dynamic underway through Monday trading in Asia, pointing to the upcoming in Europe and the US: a sense that investors were unlikely to be losers much either way over the short term.

Whatever actually happened with Omicron as a health issue, and indeed what it did or did not trigger governments to do, it would likely delay any Fed action to remove its zero rates- money printing stimulus.

Not that the Fed of re-appointed Jerome Powell and elevated Lael Brainard – dove and uber-dove respectively – needs much pushing to postpone any thought of tightening.

So if Omicron did get serious; if we did see some version of Covid Chaos 2.0 – borders slamming shut, lockdowns coming back – the Fed would likely even backtrack on the single very small step it’s just taken.

On the other hand, if Omicron looked ‘manageable’, the Fed would probably still be inclined to err on the ‘safe side’, by taking longer with its money-printing taper and even longer to actually start raising its official rate.

And what went for the Fed would go equally with in particular the ECB and to lesser extents the BoJ and the BoE.

Trader on the floor of the New York Stock Exchange. Photo by Bryan R. Smith / AFP

In short and in sum, pretty much either way, the monetary bubble underpinning global share markets would be kept inflated or inflated even further for a bit longer at least.

The RBNZ would be even lonelier for longer, in actually having raised its official rate away from zero – and done so not once but twice already; and done so from 0.25 per cent as it almost uniquely around the world never went all the way down to zero or the all-but zero of 0.1 per cent.

Again, we’ll need to see. Powell could surprise; that his re-appointment could also grow him a spine and an appreciation of his responsibilities.

Or the Wall St bubble is just so inflated – share prices are broadly double what they would sensibly be, in a rational world of a even just a 2 per cent Fed official rate – that not even the Fed can keep it inflated for much longer.

On the broader front, wherever Omicron and government actions head in the next few weeks, it’s a timely reminder that we are now in the ‘Age of Covid’ forever; there is no path back to a 2019 future.

The reality of ‘living with Covid’ just got more complicated; and that applies to investors as much as everyone.

It’s what actually happens with the virus; it’s what governments do or don’t do in response; it’s what central banks and obviously the Fed in particular do or don’t do.

And then how all that feeds into, and at the same time is reverse-influenced by what investors do on Wall St.

We simply pick up the back-wash of all that – and try to nervously trade into the upcoming session in the Big Apple.

We don’t want to wake up to either ‘surprise’ 1000-point surges as ‘surprise’ 1000-point falls.

But that is probably what is in store for us into and through 2022 – as the virus clashes with the Fed and inflation.