It’s the latest round of market upheaval since the outbreak of COVID-19 roughly two years ago, with the virus repeatedly tilting Wall Street’s assumptions about whether people would shop, travel or even turn up for work. Each new phase of the pandemic has brought new requirements for testing, border closings or warnings against public gatherings.
Much is still unknown about the omicron variant, including how much protection vaccines provide. But financial markets have taken the news in stride relative to earlier outbreaks.
That follows a pattern. Each bout of pandemic-driven volatility in the stock market since February 2020 has been shorter than the one before, and followed by a recovery to a new high. The S&P 500 through Tuesday had recovered nearly all its losses from its previous peak after omicron’s existence was announced by officials on Nov. 26.
The stock market has often been a barometer for the path of the pandemic, tumbling after concerning milestones, and rising on advancements of vaccinations and new treatments. But the two haven’t always moved in lock step, and Wall Street’s performance has at times disregarded the human toll of the pandemic as it instead zeroed in on other factors that could drive corporate profits, like low interest rates and government spending.
The market’s recoveries after pandemic-induced dips were underpinned by the Federal Reserve’s measures to cut borrowing costs and keep capital pumping through the financial system. Progress on vaccines and other treatments helped mute market falls.
They also helped shift the focus to the prospects for economic recovery and growth, even as case counts kept climbing – at least until a new development, like the discovery of omicron, served as a reminder of the uncertainty the world still faces. In recent weeks, Wall Street’s economists have begun trimming their forecasts for economic growth, some of them citing the impact that the variant could have on the pace of reopening. Many think the main risk is that the new variant will worsen persistent disarray in global supply chains.
If it prompts tighter lockdowns, it could force factories to shutter, exacerbating shortages of everything from cars to building materials. Already, those kinds of disruptions have been a key reason that prices have risen much faster than economists had expected, and the potential for the Federal Reserve to have to act to tamp down price gains has added to the market’s recent turbulence.
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