Forces influencing the performance of ASX 200 today

Highlights

  • The Australian share market marked fourth weekly fall today despite modest gains over the days.
  • Healthcare stocks were pulling down the strings of ASX 200.
  • Volatility in the Australian equity market could increase in the coming days.

The Australian benchmark index recorded modest gains today in line with the performance of the US equity market, which defied Omicron virus concerns with a strong rally on Thursday. While the share market managed to recoup some of its initial losses of the week over the day, it observed its fourth weekly loss amid virus fears.

Do Not Miss: OECD warns Omicron might slap global economy

Omicron variant posing concerns over economic growth

The market observed heightened volatility as investors digested the implications of the shifting dynamics of the pandemic while trying to gauge the governments’ measures against the new strain. It seems investors are hopeful that the new virus strain may not choke Australia’s economic revival from the pandemic.

Notably, Australia has already recorded its first case of the COVID-19 Omicron variant despite a ban on non-citizens entry into the nation and ongoing restrictions on flights. At present, it remains unclear if this new variant will cause problems similar to previous variants, like Delta, which prompted a lockdown of over four months. However, it has certainly raised the alarm for the country amid increased uncertainty around its ability to dodge existing vaccines.

 Bank stocks performed well on the ASX today

Bank stocks were seen to be shining on the ASX today, with all the ‘Big Four’ banks trading in the green territory. The overall positive market sentiment was seen to be driving gains in the financial stocks. Meanwhile, bank stocks were possibly responding to steady bond yields amid continued fears around the new variant. It is worth noting that bank stocks are usually one of the few beneficiaries of the steepening of bond yield curve as they make their money on the spread between deposits and loans.

At a time when bank stocks rallied, healthcare stocks were seen to be under considerable pressure today. The fall was primarily driven by biotech giant CSL, which is evaluating a US$7 billion buyout of Vifor Pharma. As CSL downplayed the speculation of Vifor acquisition, the stock plummeted while driving a slump in the overall healthcare sector. While CSL has given no certainty of such acquisition activity, the transaction, if successful, will be the Company’s biggest purchase since its ASX listing.

Must Read: ASX healthcare stocks for long term investors

Share market volatility is expected to increase over coming days

The Australian share market is expected to witness a highly volatile streak in the coming days as investors attempt to digest the new updates on the virus front. Investors are anticipated to continue evaluating the likelihood that the Omicron variant could spur government or monetary policy changes. One can expect the markets to remain jittery until investors receive more information on how contagious the Omicron variant is and how well-existing vaccines could hold up against it.

At a time when virus fears are dominant in the markets, investors might wonder if they will observe a Santa rally this year. The Santa Claus rally seems feasible if holiday cheer and increased liquidity could overpower concerns around the Omicron variant. However, in case the new variant has a material impact, volatility in the equity market could increase while leaving an adverse influence on stocks.

 Good Read: More than 900% gains: 5 ASX shares that won investors in 2021

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