While the late 2021 rise of Omicron seemed to cast renewed uncertainty over the outlook for 2022 (in much the same way Delta did a year earlier), the markets overall were relatively unaffected.
The fourth quarter of 2021 rounded out another year when developed share markets posted strong returns, despite ongoing uncertainties relating to global supply chains, inflation, interest rates and, of course, emerging variants of Covid-19.
Market performance continued to be driven more by supportive economic and financial data such as positive economic growth, low-interest rates, and good corporate earnings. While many uncertainties remain, we need to remember that all current information, even in matters where the outcome is uncertain, is already factored into prevailing market prices.
This attribute of market pricing is always useful to keep in mind because it helps explain the apparent paradox of how markets can still go up when bad news is announced. It can often occur when the market was expecting something even worse to happen! If the confirmed bad news turns out to be better than the news the market had priced in, then prices will often have room to adjust upwards.
It also provides some explanation for how markets have behaved as new Covid variants have emerged. While the late 2021 rise of Omicron seemed to cast renewed uncertainty over the outlook for 2022 (in much the same way Delta did a year earlier), the markets overall were
relatively unaffected. This suggests the markets did not view the threat of Omicron to be anything out-of-the-ordinary; at least not when compared to our experience over the prior 21 months.