Don't back up the truck just yet on stocks even in the wake of Friday's brutal Omicron variant fueled sell-off, warns one long-time strategist.
"I just don't think we hit the level on the S&P 500 where I am willing to say this is a screaming buying opportunity right now," said iCapital Network chief investment strategist Anastasia Amoroso on Yahoo Finance Live. "We don't see that from the oversold technical levels and also we have another potentially negative catalyst here which is the Federal Reserve. If Omicron is not an issue, but the Fed starts to react to higher inflation, we would have a hawkish Fed pivot. So I think we need to maybe put a pause on the Santa rally expectations, and look for pockets of opportunity, which I do see a few."
Amoroso thinks those pockets of opportunity exist in the biotech space as traders are reminded the pandemic is far from over. Oil stocks also look oversold, Amoroso thinks.
Traders nibbled at stocks on Monday after the Dow Jones Industrial Average cratered more than 1,000 points the day after Thanksgiving. The violent sell-off transpired as reports of the Omicron variant spreading to more countries — leading to a host of new travel bans — surfaced. Concerns mounted on the effectiveness of COVID-19 vaccines from Moderna, Pfizer and Johnson & Johnson against Omicron and other potential mutations.
The CBOE Volatility Index (VIX) — aka Wall Street's measurement of fear in the markets — shot higher by 54% on the session. That marked the the fourth greatest one-day percentage rise for the VIX since 1990, according to data from Truist.
Travel stocks like Delta and Hilton were pummeled, while traders rotated into work-from-home names such as Zoom on a view office returns would be pushed out again.
Reopening plays in the travel space saw tepid buying interest on Monday as traders awaited another potential shoe to drop on the Omicron front. The VIX — while down 22% on Monday's session — hovered around levels last seen in September during the inflation-fears driven market sell-off.
That said, some strategists are staying with their buy the dip mentality post Friday's drubbing. History suggests that is the right course of action, however painful the short-term may be for the markets.
"The evidence suggests selling on the type of fear seen on Friday has often been the wrong decision, at least longer term. Indeed, when we look at the previous instances when the VIX spiked more than 40% in one day, stocks were higher 18 out of 19 times a year later, with an average gain of 20%," said Keith Lerner, Truist co-chief investment officer, in a research note to clients.