young man wearing a medical mask

The coronavirus pandemic (COVID-19) continues to create public health and economic crises in the United States and around the world. The global pandemic has pushed hospitals to their capacity and disrupted life as we know it. A global economic slowdown has resulted. The pandemic also created supply, demand, and financial shocks in tandem.

When details about the COVID-19 Omicron variant emerged, it signaled a sell-off in the financial markets. That’s because the stock market isn’t prepared to consider the potential impact of a dangerous new coronavirus variant. Although no one knows if Omicron is a major threat yet, science suggests it will take two weeks or so before enough data is available to make an informed judgment.

Will Omicron Wreck the Financial Markets?

Economist Steven Moore believes that a lockdown of any kind would “wreck the market.” He says that locking down the economy will have future devastating effects. He believes that the decision to keep business doors open is the best driver of U.S. economic stability. He points out that lockdowns are an inefficient way of managing our health outcomes from COVID-19. He said, “We just don’t know how serious this version (of coronavirus) will be…I think it will…ruin the stock market (in any kind of prolonged lockdown).”

Cold weather in North America and Europe means that more people are spending time indoors. If Omicron is more transmissible, it may be easier for people to catch the virus now. In a lockdown scenario, it’s likely that fewer consumers will spend money on holiday gifts or go out to restaurants. Businesses may decide to delay their investment plans. Other economic sectors, e.g. airlines, hospitality, and travel, would continue to spill red ink.

While the factors aren’t positive for the broad economy, it’s likely that investors would continue to buy quality large-capitalization stocks for their portfolios in a low interest rate environment.

Economic Disruption and the Omicron Variant

Although the economy appears to know how to deal with pandemic disruption, Omicron could create greater disruptions than before. Public health officials around the world say it’s too soon to tell whether Omicron is more than a variant of concern (VOC). If vaccines aren’t as effective against Omicron, businesses are likely to keep more workers at home. Shoppers are most likely to continue their shopping online.

State of the U.S. Economy

Omicron may be a mere economic setback if the government decides it’s in the country’s best interests to keep the economy open.

Massive government borrowing is intended to keep money flowing in the U.S. markets but, at some point, the government must acknowledge it can’t keep financially stressed workers and families afloat. More families face food insecurity now than at the start of the pandemic. Food prices are rising. People must go back to work to offset these factors.

Cheap borrowing costs continue to fuel the housing market. Labor and materials shortages are driving wages and housing prices. Home supplies remain low. Because interest rates and savings rates remain at historically low levels, inflation continues to rise, investors are reasonably certain to keep their money in the stock market.

What Would Wreck the Market?

The current long-lived bull market for stocks is likely to continue if interest rates remain low. It’s in the government’s best interests to maintain a low-interest-rate environment: businesses, individuals, and the government’s ability to service its outstanding debt are at stake.

A default on the U.S. debt would have serious negative effects on the economy and financial markets. Economists predict that the value of the U.S. dollar would fall in response to the government’s default on debt payments.

Rising interest rates could wreck the economy. In past decades, sharply rising interest rates caused lower stock and real estate prices as investors used funds to buy fixed interest investments like bonds and certificates of deposit.