When stocks march higher in the face of several risks, they’re proving an old Wall Street adage: stocks climb walls of worry. This expression refers to the stock market’s tendency to climb when investor fears don’t materialize.

Throughout 2021, equities have been climbing the wall of worry, brick by brick. Accelerating economic recovery, resilient consumer retail sales, and robust corporate earnings growth are assuaging investor worries about the pandemic and inflation.

And the Omicron variant? It’s turning out to be just another brick in the wall (with apologies to Pink Floyd).

The World Health Organization on Monday called Omicron’s symptoms “super mild.” On the same day, Dr. Anthony Fauci said of the variant’s effects: “Thus far, it does not look like there’s a great degree of severity to it.”

According to the FDA, the early indication is that people will be protected against serious illness from Omicron with two doses of mRNA-containing vaccines.

Wall Street started the new week with a relief rally. On Monday, the main U.S. stock indices rose as follows: the Dow Jones Industrial Average +646.95 (+1.87%); the S&P 500 +53.24 (+1.17%); the tech-heavy NASDAQ +139.68 (+0.93%); and the small-cap Russell 2000 +44.17 (+2.05%).

In pre-market futures contracts Tuesday, U.S. stocks were trading sharply higher, extending their rally as investors continued to reassess their initial dread about Omicron.

Watch This Video: The Omicron Conundrum

It’s unknown how Omicron will eventually play out, but forthcoming vaccines and early reports that the mutation produces mild symptoms are prompting Wall Street to focus on economic growth and cyclical plays. The energy patch has sprung back to life.

Crude oil prices rallied Monday on the increasing optimism over Omicron, with the per-barrel price of U.S. benchmark West Texas Intermediate (WTI) jumping 2.85% (see the following chart of WTI prices over the past month, as of market close December 6).

The per-barrel range of the mid-$60s has provided strong price support, so it seems the major oil price selloff has ended.

However, it’s worrisome that much of the upward impetus for stocks has come from an influx of new and inexperienced individual investors. Many of these investors are newbies engaged in frantic day trading to stave off pandemic-induced boredom.

They’ve been making fear-of-missing-out (FOMO) bets on meme stocks, hot initial public offerings, and cryptocurrencies. If these dubious bets turn sour, the neophytes could flee for the exits, precipitating a broader market decline.

Bitcoin takes a bath…

The granddaddy of cryptocurrency, Bitcoin (BTC), has cratered in recent days. The token reached an all-time high of $69,000 on November 10. Since that record peak, Bitcoin has plunged about 26% and currently hovers at about $51,400.

Read This Story: Bitcoin: Wealth Creator or Destroyer?

Pandemic anxieties have been amplified in the risky and volatile crypto market, although as of this writing Bitcoin appears to be mounting a modest comeback driven by Wall Street’s pervading optimism.

Meanwhile, inflation is another worry, with the latest data showing it’s running hot. You should include inflation hedges in your portfolio as a precaution, but don’t get too defensive. You’ll incur an opportunity cost. Rising inflation entails risks but it also signals a healing economy. Too much caution could prove harmful to your portfolio.

That’s why small caps make sense now. Historically, small caps excel during inflationary and rising interest rate environments, because they typically have low debt, making the risk of refinancing debt expense at higher rates immaterial.

Furthermore, many small companies are “disrupters” that operate in new markets where competition is initially low. They consequently enjoy the ability to raise prices easier than large caps, which paves the way for high profit margins. Over the long term, small caps tend to outperform the broader market.

Every portfolio deserves exposure to small caps. Your diversification strategy should encompass various valuation sizes, not just large caps.

An essential raw material…

For appealing cyclical sectors, look to the resurgent energy, industrials, and financial sectors. I’m also keen on commodities. Which brings me to a silver-white metal called lithium.

Lithium is among a slew of commodities that are poised for huge price gains as demand for commodities explodes. Global infrastructure projects also will boost the need for lithium.

Lithium is crucial for a variety of industrial applications. The biggest growth driver for lithium is demand for lithium-ion batteries used in electric vehicles. For details about America’s number one lithium play, click here now.

John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link.