Omicron Who? S&P 500 Closes a Short Trading Week at a New High.

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A Covid-19 testing location at Los Angeles International Airport.

AFP via Getty Images

Undaunted by Omicron, stocks scaled new heights this past week.

After a Monday setback, the S&P 500 index clambered up to a record high of 4725.79 by Thursday’s close, finishing the four-day week with a gain of 2.3%. The Dow Jones Industrial Average gained 1.7%, while the Nasdaq Composite rose 3.2%.

Near the end of a year when the Covid-19 death toll surpassed 800,000, investors kept their focus on a recovery that’s lifted the S&P 500 almost 26% since January’s start. The benchmark has nearly doubled since 2018.

As Omicron becomes the dominant variant in new Covid infections, investors took heart from growing evidence that it is contagious but less severe than earlier strains—if you’ve been vaccinated. Infections from the fast-moving coronavirus have apparently peaked in their hot spot of South Africa.

“[A]ll data continue to point to Omicron being much less dangerous than prior waves despite its extreme transmissibility,” write the folks at Bespoke Investment Group, “with negligible threats to vaccinated or previously infected people, and very short epidemic curves that burn out quickly.” President Joe Biden’s plan to distribute the newly authorized antiviral pills from Pfizer (ticker: PFE) and Merck (MRK) should prevent repeats of last year’s hospital overflows.

The market deserves to celebrate. Covid brought death and dislocation, but we tend to pay too little heed to what didn’t happen. If vaccines hadn’t changed the pandemic’s trajectory, the U.S. would have suffered nearly 1.1 million additional deaths and 10 million more hospitalizations—according to an epidemiological model by the Commonwealth Fund cited this past week in the Journal of the American Medical Association.

That doesn’t mean Omicron isn’t setting back important parts of the economy. Professional hockey is on pause. The pro football and basketball leagues postponed games. Broadway has gone dark. But there’s been compensation—in a kind of lonely way—with the flood of content created by streaming services in 2021. Entertainment giants like Comcast (CMCSA), Walt Disney (DIS), and Netflix (NFLIX) increased their production spending 20% this year, to nearly $50 billion, notes Guggenheim analyst Michael Morris. New “over the top” subscription services, like Apple ’s (APPL), contributed over $8 billion worth of new content this year.

While Big Tech has filled our evenings, it’s also dominated the trading hours. Despite some lost ground recently, a handful of big names like Tesla (TSLA) and Nvidia (NVDA) contributed a third of the S&P 500’s gains this year. It’s been an unusually narrow bull market this year, as measured by breadth indicators.

Credit Suisse U.S. equity strategist Jonathan Golub notes that the universe of tech stocks, equally weighted, is up only about 14% in the past 12 months. Contrast that with the 32% gain scored by the megacaps once known as the FAANGs—which have now morphed into the GAMMA stocks: Alphabet (GOOGL), Apple, Microsoft (MSFT), Meta Platforms (FB), and Amazon.com (AMZN). The GAMMAs have had high sales growth and returns on equity, but also much higher valuations. The index boost provided by these giants has made passive investors feel brilliant and active stock pickers feel dumb.

Monday’s market drop was particularly sharp for the environmental sector. That’s because Sen. Joe Manchin’s (D., W.Va.) refusal to support the Build Back Better Act casts a shadow over industries that expected boosts from some $550 billion in green-energy subsidies and tax incentives.

The blow backfooted stocks like the solar electronics makers SolarEdge Technologies (SEDG) and Enphase Energy (ENPH), as well as the solar installer SunRun (RUN), which were already unsteady after California regulators proposed changes to the state’s solar power economics. But panel maker First Solar (FSLR) dropped enough Monday that Evercore ISI’s Sean Morgan calls it a “tactical Outperform,” even though he has long-term concerns about competition from China’s manufacturers.

Call it yet another silver lining in a year full of them.

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Write to Bill Alpert at william.alpert@barrons.com