How the omicron variant can impact Canadian stock markets

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 How the omicron variant can impact Canadian stock markets
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Highlights

  • Global economies are currently faced with new challenges amid concerns of the new omicron variant being potentially immune to available COVID-19 vaccines.
  • Investors are already showing pronounced fear regarding how its spread can affect the stock markets.
  • The World Health Organization (WHO), on Friday, November 26, declared the omicron strain a “variant of concern.”

Global economies are currently faced with new challenges amid concerns of the new omicron variant being potentially immune to available COVID-19 vaccines.

While there is much left to be learnt about the new strain, investors are already showing pronounced fear regarding how its spread can affect the stock markets.

Such fears are not completely baseless, considering how global markets were left shattered when COVID-19 first hit the pandemic status in March last year.

Before diving into what can happen in case the omicron strain strikes hard, let us look at how the new variant has impacted stock markets so far.

How omicron’s emergence impacted Canadian stock markets

First reported in South Africa on November 24, the omicron strain so far is believed to have mild symptoms. Travel restrictions, nonetheless, have been implemented in many countries, including Canada, as a precautionary measure, but that has not stopped the fears from spreading.

After drugmakers raised concerns about the efficacy of existing COVID-19 vaccines on the new variant and the time their upgradation could take, stock markets took a significant hit.

Also Read: Moderna (MRNA) surges amid Omicron fears: A COVID stock to buy?

The situation worsened as the World Health Organization (WHO), on Friday, November 26, declared the omicron strain a “variant of concern.”

While the TSX Composite Index rose on Thanksgiving, it swooped by a whopping 2.25 per cent to 21,125.90 on November 26.

S&P/TSX’s one-year price chart as on November 26 (Analysis by Kalkine Group)

Image courtesy: S&P/TSX’s one-year price chart as on November 26 (Analysis by Kalkine Group)

The decline was fueled by biting losses across sectors:

  • Energy had tumbled by nearly six per cent.
  • Healthcare reported a loss of 3.3 per cent.
  • Base metals was down by about three per cent.
  • IT sank by 2.6 per cent.
  • Industrials was down by 2.24 per cent
  • Financials was down by 1.9 per cent.

After the fall on November 26, the S&P/TSX Composite Index ended its second consecutive week in the red, noting its biggest 7-day loss since January.

In the US, after the markets opened on November 26 following the Thanksgiving holiday, all major indexed reported pointed declines:

  • The S&P 500 had dipped by 2.27 per cent to 4,594.62.
  • The Dow Jones noted a fall of 2.53 per cent to 34,899.34.
  • NASDAQ Composite was down by 2.23 per cent to 15,491.66.
  • Russell 2000 was down by 3.67 per cent to 2,245.94.

The fall led many to speculate about this being “the worst Black Friday” the markets have seen since 1950.

Also Read: 3 Canadian healthcare stocks to keep on your radar

How are the Canadian markets now?

Canada's main stock index ended November at a one-month low on Tuesday.

On Wednesday, December 1, the TSX composite index closed about a per cent, or 195.39 points, lower at to 20,464.60 as the WHO confirmed the omicron variant’s presence in 23 countries.

This development, the WHO noted, was “extremely” serious.

With the latest fall, the Canadian benchmark index has slipped to its lowest point in over seven weeks.

The TSX, on Wednesday, saw the healthcare sector slip by 5.3 per cent, while the tech and base metals sectors dipped by 2.7 per cent each. 

The US markets also closed lower on Wednesday, as the country detected its first omicron case.

The S&P 500 slipped by 0.42 per cent to 4,547.63, the Dow Jones declined by 0.69 per cent to 34,246.34 and the NASDAQ Composite fell by one per cent to 15,383.05.

How can the omicron variant impact Canadian markets going forward?

Officials at Ottawa Public Health said on Monday that two new cases of the omicron variant have been recorded in Ottawa, which reportedly brings Canada's total count of cases to five.

While the country is already implementing travel bans, that will likely not be enough to dissipate investor concerns.

US Federal Reserve chairperson Jerome Powell recently noted that the omicron variant could aggravate the uncertainty around economic recovery and inflation. This is likely to application to Canada se well.

Rising number of omicron cases in Canada (and in the US, for that matter) could see the country’s primary index lose the gains it made while rebounding from the pandemic lows. This loss, coupled with the health and operational crisis the new variant poses, could go on to hinder Canada’s long-fought economic recovery.

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