11/30/2021 | News release | Archived content
The potential spread of the omicron strain is roiling markets. Here's our quick take to keep it in perspective.
At its face, the potential rise of a new variant adds to an already uncertain time. (How uncertain? See our companion comment on investing and uncertainty.)
Uncertainty tends to make people uncomfortable. They want to "do something" to feel in control, and those decisions often end up being counter-productive. You won't be surprised to hear us say, keep those emotions-whether greed or fear-in check.
As to the path of omicron, it may take weeks to gain more insight. Key questions are:
We believe the answers will be incremental rather than radical. We don't expect them to change our broader view that:
Importantly, with the latest omicron news, markets are behaving as you would expect. That is reassuring, despite the uncertainty investors may feel. What do we mean?
We see similar rationality in fixed income. With Chair Powell's announcement today that the Federal Reserve may move more aggressively to taper and ultimately raise rates, bond investors responded accordingly: nearer-term yields rose, longer-term yields fell, and the "yield curve" continued to flatten. Bond markets are (beginning to) digest the Fed's policies, and they are also saying they don't expect inflation long-term to be a major problem.
These rational responses don't mean there won't be high volatility though. That's because today's headlines might run counter to yesterday's as we gain insight to the questions outlined above. When markets aren't directly tied to deep fundamentals, this kind of volatility can happen, from our experience.
As a final comment, we'll point out that we ignore the daily headlines. We have actively responded to fundamental and economic indicators along the way and "in advance" to build diversified portfolios designed to navigate uncertainties such as these.
Our bottom line here is that omicron is certainly an unknown that will gain clarity over time. More broadly, it is an example of unexpected events that happen with some frequency, where timing and outcomes are unclear. We strive to navigate uncertainties like omicron through diversified investment strategies designed around your risk profile and wealth plan.
For details on our current positioning, see https://cornercap.com/the-next-phase-in-the-pandemic-era/.
 The debate rages as to whether bond markets (and the Fed) are too tame in their view of long-term inflation. We tend to give more weight to messages from bond investors, since they tend to have a longer horizon than the average equity investor. That said, bond markets can get it wrong. Our own view is that embedded inflation may gain enough traction, especially in wages and rents, to render inflation higher than what bond markets expect; but we agree that hyper-inflation (greater than 5%) is not the likely outcome.