Some of the worries about the Omicron variant declined over the weeks following various comments that it may not be as severe as the Delta variant. However, Delta continues to spread quickly, and there is still limited information about Omicron.
The indexes are producing some tentative positive action this morning, but the market's problems go beyond Covid and its variants at this point. The Omicron crisis helped to magnify several problems that have been brewing for a while. First and foremost is inflation and the Fed's increased hawkishness. Higher interest rates have a greater impact on growth stocks because, in many cases, significant earnings are far in the future. Growth stocks and the big-caps particularly have some valuation issues that much of the rest of the market does not face.
Another issue the market is facing is technical damage caused by the selling that has hit in the last couple of weeks. Currently, many stocks are being dumped regardless of valuations and future prospects because they are not finding any support. The weakness feeds on itself and is driving more money to the sidelines.
An example of the poor price action is impacting market sentiment is cryptocurrencies which were hit hard this weekend but have bounced back from the worst levels. Cryptos have been increasingly correlated with poor action in the market indexes, which illustrates that they are not being viewed as some sort of safe haven.
What the market is really grappling with right now is uncertainty. There is uncertainty about the Omicron variant, there is uncertainty about inflation and what the Fed might do, and there is uncertainty about what governments around the world might do to address the issues.
An added complexity of the market right now is the huge gulf between the indexes and the great bulk of the market. Many stocks topped out way back in February, and there has been a bear market in the majority of stocks for a while. You would never know that from the business media, which are focused on the big-caps and the indexes. They are finally seeing the sort of behavior that has been impacting most stocks for months.
It is a very chaotic market environment right now, and volatility is likely to stay evaluated. The good news is that some great opportunities are developing, but it will require patience and vigilance to capitalize on them.