The Grinch is trying a new trick this year. Instead of dressing up as Santa Claus and stealing presents, he’s decided to leave a little market volatility under the tree for each of us instead.
If you’ve been watching the markets, you know the Dow dropped 532 points on Friday, December 17 – then promptly slid another 433 points the following Monday.1 As your financial advisor, the last thing I want is for market fear to overshadow holiday cheer. So, I thought I’d pen a short note about what’s going on for you to read between hanging stockings and wrapping gifts. Like any good Christmas story, things may seem gloomy at first, but in this letter, I’ll explain why, despite his best efforts, the Market Grinch still won’t be able to ruin the season.
When the World Health Organization announced a new variant of COVID-19 back in November, the market’s reaction was predictable: A sharp drop, an equally sharp recovery, and then a plateau of watchful waiting. (The Dow dropped over 1,782 points between November 24 and December 1, then climbed 1,697 points over the next six days.2 ) That was because investors realized there was a lot we didn’t yet know about Omicron yet, including:
- If it was more or less contagious than previous variants.
- If it was more or less virulent than previous variants.
- How effective the various vaccines would be at protecting against it.
Thanks to the heroic efforts of scientists around the world, we now know much more than we did just a few weeks ago. Unfortunately, the news isn’t entirely good. As you’ve probably heard, early evidence – emphasis on “early” – indicates that Omicron is significantly more contagious than previous variants like Delta.3 It’s also more capable of evading the body’s immune response, meaning that both prior infection and existing vaccines – including the two-shot mRNA vaccines available in the United States – provide less protection against infection.4
The news isn’t all bad, though. As of this writing, there doesn’t seem to be any evidence that Omicron is more deadly than previous variants. Further, vaccines do still seem to offer significant protection against severe illness and hospitalization.4
But the prospect of an especially contagious variant spreading like wildfire across the globe once again has investors heading for the hills. And the reason is understandable.
Omicron’s rapid rise has prompted many countries to circle the wagons again. The Netherlands has re-instituted strict lockdown measures, France has banned large events and gatherings, Denmark has closed theaters, Israel has imposed travel restrictions…you get the idea.5 And other countries are poised to follow suit in the coming days. Of course, every country will experience consequences in some form or fashion. As more people get sick, restaurants, shops, manufacturing plants and other businesses the world over will be forced to shut down or cut back on production. Given that most economies still haven’t recovered completely from the initial stages of the pandemic, it’s the last thing the world needs.
The most important cost of all this, of course, is the human cost. Every day, people’s lives are being changed forever because of this awful virus. But the economic cost is what has investors reeling. Whether through more restrictions or more cases, Omicron is throwing yet another wrench into the world’s supply chains. This, in turn, keeps prices high and worsens inflation.
It's frustrating that we have to keep talking about this, isn’t it? As we enter the third year of the pandemic, it’s easy to feel like we’re starting over. Back to Square One. Maybe, to quote a phrase currently going around on social media, the year 2022 should be pronounced “2020, too.” On the surface, it seems like the Grinch is winning.
But if I may quote a very famous doctor…
“[The Grinch] heard a sound rising over the snow.
It started in low. Then it started to grow.
But the sound wasn’t sad! Why this sound sounded merry!
It couldn’t be so! But it WAS merry! Very!
Every Who down in Whoville, the tall and the small,
Was singing! Without any presents at all!
He HADN’T stopped Christmas from coming! IT CAME!
Somehow or other, Christmas came just the same.6
You see, we’re not back to Square One. We’re not starting over – as a nation or as investors. Flashback to March 2020. Do you remember how things felt? The virus was new and terrifying. As citizens, we didn’t know exactly what it did or how it worked, or what we could do about it. As investors, we didn’t know how far the markets would fall, or how long, or, again, what we could do about it. We didn’t have a playbook.
Now, all these months later, we know – and have – so much more. As citizens, we know how to live with the virus, and how to keep ourselves as safe as possible from it. We have vaccines and other treatments. We have experience.
As investors, we know how to handle sharp, COVID-related downturns. Of course, we don’t know exactly how long volatility will last, but we have a playbook for dealing with it. We know that, in the short term, Omicron will probably continue to impact the markets. But we also know that volatility is temporary. We know that, on its own, the coronavirus doesn’t make good investments bad. On its own, it doesn’t change what kind of long-term return you need, or how much risk you can afford – and we’ve specifically constructed your portfolio with those requirements in mind.
Most of all, we know that holding to our long-term strategy works. The playbook that helped weather 2020 will help us in 2022.
That’s why the Market Grinch isn’t winning. It’s why he never will.
So, my advice is to forget about the Grinch. Ignore the headlines. Fill your mind with visions of sugarplums and your heart with love for the season. Be like the Whos down in Whoville. My team and I will continue keeping an eye on the markets, using the playbook we’ve worked so hard to assemble. Tina and I wish you a Merry Christmas and a Happy New Year!
P.S. While I encourage you to not stress over market swings, I understand that’s sometimes easier said than done. After all, it’s your money! So, if you have any questions or concerns about your portfolio, please let me know. I will always be here for you.
1 Stocks fall and oil sinks as storm clouds gather over global economy,” CNN Business, December 20, 2021. https://www.cnn.com/2021/12/20/investing/markets-stocks-oil/index.html
2 “Dow Jones Industrial Average Historical Prices,” The Wall Street Journal, accessed December 20, 2021. https://www.wsj.com/market-data/quotes/index/DJIA/historical-prices
3 “Why Is Omicron So Contagious?” The Scientific American, December 17, 2021. https://www.scientificamerican.com/article/why-is-omicron-so-contagious/
4 “See COVID Vaccine Efficacy Against Omicron Infection, Severe Disease in One Chart,” NBC, December 20, 2021. https://www.nbcnewyork.com/news/coronavirus/see-covid-vaccine-efficacy-against-omicron-infection-severe-disease-in-one- chart/3459677/
5 “Stocks, Oil Prices Fall on New Covid-19 Curbs,” The Wall Street Journal, December 20, 2021. https://www.wsj.com/articles/global-stock-markets-dow-update-12-20-2021-11639989846
6 Dr. Seuss, “How the Grinch Stole Christmas,” Best Poems Encyclopedia, https://www.best-poems.net/poem/how-grinch-stole- christmas-by-dr-seuss.html