Stocktake: Are analysts too relaxed about Omicron variant?

The emergence of the Omicron variant has rattled global markets, with volatility hitting its highest level in 10 months, but analysts largely think it’s a speed bump in an ongoing bull market.

"We know how the Covid playbook ends – with buying the dip," said RBC, a take echoed by Goldman Sachs, Citi, UBS, Blackrock, and JPMorgan, among others.

Bulls point to a number of factors that should limit market downside. Firstly, the nature of viruses is they mutate. "We expected such a variant to come," said BioNTech chief executive Ugur Sahin. Although Moderna says existing vaccines will probably be less effective against Omicron, Sahin expects continued protection against severe disease.

Even if new vaccines are required, they can be available within months, while new antiviral treatments will also help.

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The consensus is Omicron will delay but not derail the restart of economic activity, while multiple strategists note the economic damage has lessened across each Covid wave.

Additionally, the buy-the-dip trade has become a Pavlovian reflex. Even after the recent downturn, the S&P 500 is up about 10 per cent since early May, when the Delta variant shook the world.

A survey of investors by Deutsche Bank's Jim Reid found only 10 per cent expect the variant to be the biggest topic in financial markets by December 31st. Most expect it to be an issue "only of moderate importance", while 30 per cent expect Omicron to be "largely forgotten".

Is there some complacency here? Investors will be offside if Omicron does prove to be a game-changer, says Reid, as markets are “probably not set up for bad news on this front”.