Why Omicron is a bigger market risk in 2022 than people think

U.S. markets have largely shaken off Omicron fears, witnessed by the pop in cruise line stocks Thursday despite a general market sell-off. But surging COVID-19 infections in China, beyond the early pandemic peak, are leading one strategist to warn of an underpriced risk to inflation that could weigh on stocks.

At a recent Yahoo Finance Plus webinar, Bianco Research President Jim Bianco argued that China's zero tolerance COVID policy could lead to a nationwide shutdown — causing economic reverberations around the world.

"What I'm most worried about here is as this Omicron variant mushrooms, and we get millions of cases a day, it's not necessarily a health risk. But what it is is that anybody who tests positive can't go to work for 10 days, and we've got huge absenteeism. And that's really coming home in China in a big way, because China has a zero COVID policy. They lock everybody down, and lock you in your house for weeks on end until COVID goes away," said Bianco.

The latest inflation numbers Thursday revealed producers are facing a 9.7% rise in overall input prices over the last year — with a 20.2% jump in commodities prices. As the Federal Reserve slows its pace of asset purchases (QE), it also recently signaled it will wind down its balance sheet earlier than expected. And at Thursday's confirmation hearing for vice chair at the Fed, Lael Brainard said the Fed has a powerful "tool" to fight inflation.

Bianco argues that another surge in inflation only hastens the Fed's dilemma over tightening monetary policy at the expense of growth. A poll conducted at the webinar asked respondents for their greatest concern about the investing landscape in 2022. Of the 208 respondents, 59% said inflation was their top concern, followed by regulatory risk (19%). Geopolitical risk, political risk and health risk each received less than 10% of the votes.

But it was the relative investor disregard for health risks that alarmed Bianco the most, despite the poll being admittedly unscientific.

"If we're not worried about health concerns, I'm not going to stop ordering Amazon boxes. I'm not going to stop ordering stuff that I want. They're going to have a harder time fulfilling that. Because look what happened in the United Airlines at Newark Airport a couple of days ago. One third of their staff called in sick because they tested positive for Omicron," said Bianco.

Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared. Devan Burris is a producer for Yahoo Finance Live.

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