U.S. markets and stock exchange traded funds climbed on Thursday, rebounding off the recent spate of uncertainty surrounding the spread of the new COVID-19 Omicron variant and its potential impact on the global economy.
The Invesco S&P 500 Equal Weight ETF (RSP), which follows the S&P 500 Equal Weight Index (EWI), rose 2.4% on Thursday. Meanwhile, the S&P 500 was up 1.4%, the Dow Jones Industrial Average was 1.7% higher, and the Nasdaq Composite rose 0.7%.
“Obviously, there’s concern about Omicron but there’s a feeling that infections aren’t as severe as initially thought,” Oliver Pursche, senior vice president at Wealthspire Advisors, told Reuters. “Second, economic data, particularly labor data, is coming out on the strong side.”
While markets were still digesting the potential consequences of elevated inflationary pressures, investors are now faced with the potential negative economic impact of the Omicron variant.
“You have a demand disruption story on one hand—Omicron—and a monetary tightening issue with the Fed, so people are trying to figure out which way is up,” Austin Graff, co-chief investment officer and portfolio manager of the TrueShares Low Volatility Equity Income ETF, told the Wall Street Journal.
The equity markets have experienced wild oscillations this week on the uncertainty, but traders on Thursday were assuaged by comments from the World Health Organization’s chief scientist, who suggested that vaccines could still offer some protection. Nevertheless, many are still taking a wait-and-see approach before adjusting their portfolios accordingly.
“People are still dealing with uncertainty about Omicron and how much of a threat it poses,” Salman Baig, a multi-asset investment manager at Unigestion, told the WSJ.
Meanwhile, Federal Reserve Chair Jerome Powell hinted at an interest rate hike in the first half of 2022, further fueling market volatility this week. Labor scarcity, along with persistent supply chain constraints, has erased the “transitory” stance from the Federal Reserve’s inflation outlook as wages and prices rise.
“Should the Fed move rates up sooner than expected, while it could affect markets negatively in the short term, it gives the Fed room to act when the next recession nears,” Pursche added.
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