As omicron looms, ‘weary’ clients may need some TLC

With the discovery of the new Covid-19 variant omicron, markets have been volatile, and clients may be struggling with their own ups and downs.

Stocks were rebounding at midday on Thursday, following both the S&P/TSX Composite index and the S&P 500 dipping more than 3% and 2%, respectively, over the past five days.

A performance report from FTSE Russell on Wednesday noted that the recent “panic selloff” was causing a “flight to safety [that] sent gold and the U.S. dollar higher and unraveled recent outperformance in financials and other cyclicals.”

“The risk-off trade left few industries unscathed,” the report said, with technology and defensive stocks outperforming financials and cyclicals — “a stark reversal from October trends.”

Clients’ reactions to recent market bumps have varied, said Kathy McMillan, director of wealth management and a portfolio manager and advisor with McMillan Wealth Solutions, Richardson Wealth, in Calgary. Many clients are used to her being proactive about investing opportunities.

“Most [clients] are saying, ‘I thought you would be calling,'” she said, because they’re aware that market dips can be a boon and she also tends to send notes to them about market volatility.

However, there’s a second, albeit smaller, group of clients who are wary. Because markets haven’t corrected in a while, some clients will refer to the “severe market correction” — even experienced clients, she said.

“I’m saying to them, ‘You and I have lived through [the great financial crisis] when the markets dropped in half,” she said. Recent market drops are small by comparison, and they present opportunity, she tells them.

Something to consider about clients is “we’re all just weary,” McMillan said. After multiple lockdowns and persistent health concerns, people are less equipped emotionally for corrections that are happening “so quickly,” she said.

In a note on Tuesday, Invesco’s chief global market strategist Kristina Hooper also highlighted emotions: “Investors fear a worst-case scenario variant that could send many parts of the world back to the dark days of 2020,” she wrote.

“With many major economies now experiencing cold weather, and lockdowns in some European countries, this would only add to problems and exert downward pressure on stocks, especially more cyclically sensitive equities,” Hooper added.

Hooper forecasted it was likely people would return to their “mid-2020 investing playbook” and for familiar factors to emerge, including “accommodative monetary policy, real bond yields falling, and growth stocks outperforming value stocks.”

However, she cautioned it could take weeks to get proper information about omicron. In the meantime, she was negative on travel and leisure, basic resources and general retail, and positive on technology, health care and utilities.

Due to the majority of her business being non-discretionary currently, McMillan said she and her team have been busy scanning for opportunities and then calling clients — similar to when markets tanked briefly in March 2020 but at a much brisker pace.

“I was at the dentist [last week] and I was trying to trade,” she quipped, noting, “In the old days, markets started correcting and you had time. I waited until we had a good correction.”

Now, if you look at last week’s markets as an example, “We had two days and I started buying on the second day, and then we were up on the third day. Then on Friday, down it came, and I made buys,” McMillan said. All that activity required multiple layers of communication with clients and among her team.

As for what she’s watching, discounted Canadian banks were a pick during the March 2020 tumble, and they remain strong portfolio picks — a point that’s bolstered by solid earnings and dividend increases by most of the Big Six already reporting this week.

Even so, “You have to watch your markets,” McMillan said.

Given her portfolios are low on Canadian exposure, she’s also watching the Nasdaq Composite due to current weakness relative to other U.S. indexes, and she’s considering sectors and funds at attractive prices.