The market is selling off Tuesday morning following comments from the CEO of Moderna (MRNA) that its vaccine may be less effective against the Omicron variant of Covid-19. There is still much research to be done, but the uncertainty created by these comments is triggering selling pressure.
In addition to Moderna, there are comments from Regeneron (REGN) that its antibody-drug cocktail was found to lose effectiveness against the variant and may need modification.
Despite these comments, the early indications are that the Omicron variant may be more contagious but less severe. There is still a tremendous amount that is unknown, and as the saying goes, the market hates uncertainty.
The senior indexes did an excellent job of shrugging off some of the worries on Monday, but it was a deceptive day with weak breadth, more stocks hitting new 12-month lows, and weakness in growth stocks and small-caps. The theme of a small group of big-cap names holding up the indexes continued to dominate the action.
The problem the market is going to grapple with is the uncertainty of Omicron. Monday there was optimism that it could be handled well, but Tuesday morning the comments from the drug companies are causing concern. There is very little hard data, and most of the words are just speculation, but it is causing increased worries.
The challenge for market players is determining how long the Omicron uncertainty will weigh on the markets. There are still no reports of a U.S. case, which may cause additional pressure when that headline hits.
From a trading standpoint, the most significant issue to consider right now is the two-tiered nature of the market. On the one hand, there is a bear market in much of the market, but it is hidden behind the indexes and big caps, which some pundits call a bubble. If the indexes represented the average stock, all the headlines would be talking about a bear market and the potential for a low, but the indexes have corrupted the big-picture view of the market and prevent the healthy wash-out that is needed.
My game plan is to continue to watch for better price action in stocks that I favor. I want to buy relative strength in names with solid fundamentals and charts. Many great stocks are not extended, but they also have little technical support and can easily drift lower. I'm still optimistic about some strong action before the end of the year, and this Omicron uncertainty may eventually help create good bounce conditions.
Futures are off the early lows, but the negative speculation will keep some folks on the sidelines.