The Omicron Variant and What it Means for Your Investment Strategy
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The ”Best Case” Scenario
The best outcome of the current Omicron-scare would be a scenario in which the mutant is found to be a combination of the following three aspects:
- The Omicron mutation will lead to less severe infections compared to the Delta variant
- The characteristics of the Omicron mutation will make the virus spread slower than initially expected
- The current existing vaccinations prove to be effective against the Omicron variant (hence no immune/vaccination escape)
If these 3 aspects prove to be true, the Omicron variant can in fact have a positive effect on the current pandemic. Given that the Omicron variant may have a competitive advantage over the Delta variant, Omicron will also reduce severe illness and hence hospitalization rates as well.
Such a scenario would in our estimation result in a sharp market recovery, given that all else remains equal. Hence, investors may hold their current positions and may not find it necessary to apply major strategy changes to their current investing approach.
The “Worst Case” Scenario
A worst-case scenario would mean a combination of the same 3 aspects, but with the opposite result:
- The Omicron mutation will lead to significantly more severe infections compared to the Delta variant
- The characteristics of the Omicron mutation will make the virus spread a lot faster than the Delta variant
- The current existing vaccinations prove to be not effective against the Omicron variant (hence full immune escape variant)
In fact, if these 3 aspects turn out to be true, it can easily be described as a “black swan” event. Actually, it will put us all back to square one in fighting this pandemic. It would mean, we have an entirely new pandemic with a virus that is even worse than the ones we have had before. Global markets would surely tumble on those news and likely trigger a massive sell-off. If this scenario turns out to be true, Investors may protect themselves by taking advantage of stop-loss orders. Additionally, stocks in the travel and leisure industry may be worth taking a closer look at, but only following a market selloff.
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