ETF Areas to Gain/Lose on Fear of Omicron Strain of Coronavirus

The emergence of a new coronavirus strain, namely Omicron, is found to have a much bigger impact on Wall Street than anticipated. Europe enacted lockdown last week due to rising virus cases that started unnerving global investors. The World Health Organization called the new variant “highly transmissible.”

As a result, Wall Street had a bloodbath on Nov 26,with the Dow Jones Industrial Index losing 2.53% in its worst post-Thanksgiving Day performance since 1931. The S&P 500 and the Nasdaq Composite posted their worst-ever returns post-Thanksgiving Day. The Russell 2000 lost 3.67% on Nov 26. Crude oil retreated 13% on that day, leaving investors scratching their heads to find a green corner in Wall Street on Black Friday.

Cases of the new variant were found in Hong Kong, Belgium as well as in major South African cities like Johannesburg. Flights between South Africa and Europe were being subject to quarantine or shut down altogether. Airline stocks have been battered already. All these raised worries regarding the sustainability of economic recovery from the pandemic-led slump. The flight to safety brought down the U.S. treasury yield to 1.48% on Nov 26 from 1.64% the day before.

Against this backdrop, below we highlight a few ETFs that will likely gain/lose on the fear of ‘Omicron’ fear of coronavirus. As such, people will again choose to stay indoors, which in turn would boost demand for cloud computing, gaming, e-sports, streaming services as well as online shopping. Additionally, investors will continue to pile up software shares, which are apparently more insulated from the impacts of the virus. On the other hand, ETFs that depend on economic reopening will likely dive.

Winners

Pharma/ Biotech

iShares U.S. Pharmaceuticals ETF IHE has about 20% exposure to Pfizer PFE and VanEck Biotech ETF BBH has about 8.7% focus on Moderna (NASDAQ:MRNA) MRNA. Both companies are known for the meaningful success of COVID-19 vaccine. With the spread of COVID-19 resuming all over again, all focus will now shift to the vaccination and booster shots. Hence, pharma and biotech ETFs will grab attention.

Technology & Video Gaming

Fears of the Omicron variant of COVID-19 may cause higher demand for the tech stocks as these are the winning ones amid the stay-at-home trend. Plus, the sector has solid long-term potential. Technology Select Sector SPDR Fund XLK is a good pick here.

ETFMG Video Game Tech ETF GAMR has also been a COVID-19 winner as the stay-at-home trend boosted the demand for video gaming. For nine months, total consumer spending on gaming rose 12% year over year to $42.28 billion. It is impressive to observe that the video gaming industry is witnessing strong sales growth despite tough year-over-year comparisons, highlighting the strength in the space.

Work-From-Home ETF

Direxion Work From Home ETF WFH was another winner in the previous waves of COVID-19 infections. The new restrictions are likely to goad the trend of work from home all over again.

Losers

Crude

United States Oil Fund (NYSE:USO) LP USO has advanced 69.3% this year, but dropped more than 11% on Nov 26. Crude ETF USO has lost 12.8% past month and retreated 9.1% last week. Notably, oil prices has made a comeback this year on widespread vaccination, the influx of more antiviral therapies and the resultant economic reopening. But rising virus cases globally has once again capped the demand for oil and punished the liquid commodity (read: Sector ETFs to Win or Lose on Oil Slump).

Travel & Tourism

Areas that deal with economic reopening will likely get a blow. Travel stocks are likely to be wavering in the coming sessions. ETFMG Travel Tech ETF AWAY, U.S. Global Jets ETF (JETS) and ALPS Global Travel Beneficiaries ETF (JRNY) are some of the ETFs that are likely to remain stressed in the coming days.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.