Omicron leads markets to panic – again … a big-picture way to view major volatility … the specific investment steps Luke Lango suggests today

 

As I write Wednesday afternoon, the markets are looking to end the day down after having enjoyed huge gains this morning.

The reversal comes on news of the first case of the Omicron variant found here in the U.S.

The market feels manic. It’s as though one additional piece of bad news could result in another huge plunge.

Before we discuss how to respond to this, let’s take a moment to review how we got here for anyone who’s been under a rock the past few days…

The market pressure began last Friday with reports of a new Covid variant, eventually named “Omicron.”

Fears of related lockdowns and/or economic kneecapping, combined with Friday’s low trading volume, resulted in a sea of red for stocks on Black Friday.

Monday, we saw a rebound. But then, Monday night, a Financial Times article highlighted a bearish interview with the CEO of Moderna, Stephane Bancel.

In short, he said that due to Omicron’s elevated number of spike protein mutations, current vaccines won’t be super effective against the Omicron variant.

This pushed the market into negative territory again yesterday morning, but the selling pressure wasn’t awful…until Federal Reserve Chairman Jerome Powell got into the mix.

Here’s our hypergrowth specialist, Luke Lango, with more on Powell:

Powell took the stage in a Senate hearing (yesterday) morning, and in his opening remarks, the Fed Chair sounded as hawkish as he has ever sounded.

He said that: 1) It is appropriate to consider ending the taper of asset purchases a few months sooner than originally planned; 2) It is time to retire the word “transitory” when talking about inflation; 3) Inflation has spread more broadly across the economy recently; 4) The risk of higher and persistent inflation has increased; 5) Recent data suggests that the economy is very strong; and 6) The Fed will use the tools at its disposal to stop high inflation from being entrenched into the economy.

It was a surprisingly hawkish statement from a normally dovish Fed Chair.

The markets imploded after Powell’s comments, with the S&P leading the losses, down 1.9% on the day.

Today, the markets roared higher in the morning on strong private payroll data and solid manufacturing data before the first reported case of Omicron in the U.S. destroyed the rally.

So…

What should investors do?

Let’s address this in two ways – theoretical and then specific.

***The right perspective if tomorrow is another massive down day and this panic goes off the rails

“Why you should learn to appreciate a good financial crisis”

That’s the title of an essay from our CEO, Brian Hunt.

Beyond helming InvestorPlace, Brian is an accomplished investor and trader. Fortunately, he loves teaching, so he’s written a series of investment essays that read like a master’s course in investing. You can access it for free by clicking here.

In Brian’s essay referenced above, he writes how for the 210-year period from 1802 to 2012, investment returns in U.S. stocks averaged 6.7% per year. But thanks to a unique market event that happens every so often, entire groups of stocks can soar triple digits in as short as a year or so.

And while the world’s best investors see these unique events as amazing opportunities to build wealth at “warp speed,” most ordinary investors run away from them.

Here’s Brian:

How a person views these events is one of the defining differences between the rich and the poor.

The poor are bewildered and angered by these events. The rich see them simply as how the world works… and as the creators of huge opportunities.

What is this event that creates “investment magic”?

A crisis.

After providing broad context, Brian returns to the most significant aspect of a crisis – our response:

To the poor, a crisis is something totally new and unexpected. This is because one of the defining characteristics of the poor mentality is a reluctance to study and learn from history.

Since the poor have no historical context, a crisis is utterly baffling to them. They act as if each one is the first crisis in human history.

This is why the poor see a financial crisis as a time to panic or simply freeze up… a time to focus on a laundry list of boogiemen who should get the blame. Their familiar targets are speculators, corporate executives, and the government.

The rich, on the other hand, learn to appreciate a good crisis.

They certainly aren’t surprised by them.

After all, even a quick and shallow study of history shows financial panics are a common part of life. It’s just the nature of things.

Brian notes that a good crisis is about the only time when you can buy elite investments at bargain prices. This is because during a crisis, the price of assets decouples from the value of assets.

We saw this with Covid 1.0, when panic sent stocks over a cliff. But courageous investors who stepped in watched as the S&P climbed 100% in the months since.

Now, we don’t know whether Omicron will turn into a full-blown crisis.

If investors decide to act logically, it shouldn’t – but if it does, how will you respond?

Back to Brian:

The financial markets are like a chess game. During a crisis, the ownership of essential assets moves from weak players to strong players…

The greatest speculator of all time, George Soros, has a brilliant way of looking at crisis situations. He says, “The worse a situation becomes, the less it takes to turn it around, and the bigger the upside.”

Let’s now move from “theoretical” to “specific.” For this, we’ll turn to our hypergrowth specialist, Luke Lango.

***Worried about Omicron? Do this immediately

That’s Luke’s title for his issue of Hypergrowth Investing, out yesterday.

In it, Luke walks through what we know about Omicron, its biological profile, as well as the concerns over vaccine efficacy and transmissibility.

This funnels Luke toward the question on the minds of all investors…

What should you do?

From Luke:

Should you sell everything because omicron is Covid 2.0? Or should you aggressively buy the dip because omicron fears are overblown?

The answer is some blend of the two extremes. Here’s how I see it:

Omicron will likely evade vaccine efficacy, and as such, cause a quasi-aggressive policy response from governments across the globe. Those responses will likely include mobility restrictions, quarantine periods, and potentially even moderate lockdowns. That will negatively impact economic activity over the next few months.

However, such measures won’t last more than a few weeks, or months, and they will be met with notable consumer resistance in some countries. Therefore, this is not a return to March 2020 – but rather, a temporary return to March 2021, when pretty much everything was open but consumers were a bit more cautious.

That’s all.

That’s a helpful assessment of the situation. But what about Powell’s comments? How do they factor in to everything?

Back to Luke:

Consumer confidence is slipping, multiple CEOs have commented on easing supply chain bottlenecks, and the Omicron variant will likely slow economic activity some in the coming months.

Therefore, the U.S. economy will likely weaken moderately over the next few months, while inflation pressures will subdue. But if Powell and company hike rates or tighten monetary policy ahead of that – in response to the current temporary environment – then the economy will be hit doubly hard in early 2022 by a natural slowdown and tighter monetary conditions.

You’ll have slower earnings growth, which will result in lower earnings, and you’ll have higher yields, which will result in lower multiples. Lower earnings plus lower multiples equal lower stock prices.

That would be a worst-case outcome here, and with Powell’s comments this morning, the likelihood of that worst-cast outcome increased.

But only slightly…

The reality is that Powell’s remarks are just that: remarks. They aren’t action.

Actions speak louder than words, and this is a Fed Chair whose three-year history includes a multitude of actions that paint a picture of the most predictably dovish Fed Chair arguably ever.

***Again, helpful commentary, but what do we do about it as investors?

Fortunately, Luke tackled this directly.

Some investors are going to see Omicron as a signal to jump back into pandemic favorites like Peloton and Zoom, which could return 10% or 20%.

But Luke likes a different approach:

“Ignore the noise” and invest in secular growth stocks that will reshape the world over the next few years, regardless of how omicron impacts the economy in the near-term.

Doing that may score you 500% or 1,000% returns over the next few years.

Which one sounds better to you? Netting 20% over the next few months and constantly worrying about the day-to-day gyrations of an unpredictable virus? Or scoring 10X returns over the next few years and not losing any sleep over omicron?

***Combining Brian’s theoretical prescription with Luke’s specific action plan

With any luck, Omicron will blow over, the Fed won’t do anything rash, and the market will turn north after working through this volatility (this is what Louis Navellier believes).

However, if a more significant market event develops, then Brian’s broad crisis framework combined with Luke’s specific action plan offers us a response roadmap.

In short, don’t run. Instead, take advantage of world-class, disruptive technology stocks if we get lucky enough to see them drop substantially.

There’s robotics, precision medicine, quantum computing, artificial intelligence, robotics, the Metaverse… so many options.

Here’s Luke’s favorite:

We believe the biggest opportunities can be found in the electric vehicle sector, as EVs are shaping up to take over the world.

Specifically, we are very bullish on one promising EV battery breakthrough that is emerging right now; which we believe could be the key to pushing the multi-trillion-dollar EV Revolution into the mainstream.

As we wrap up, if tomorrow brings a sea of red and more panic, remember, history has shown us that with discipline and courage even a “worst case” scenario can turn into a huge wealth-generating opportunity if we handle it correctly.

We’ll continue to keep you up to speed here in the Digest.

Have a good evening,

Jeff Remsburg