The IAG share price was the top riser in London’s leading index on Tuesday as fears over the omicron variant diminished and investors picked up the beaten down shares.

“Stocks reliant on international travel are powering ahead, with British Airways owner, International  Consolidated Airlines Group rising 7% in early trade. With yet more indications that Omicron, though highly infectious, does not cause such serious illness, a wave of relief is pushing up companies which have been hit by worries about tighter restrictions,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

IAG shares were up over 10% at the time of writing in morning trade on Tuesday.

The rally in the IAG share price came a day after US airline shares soared in the first trading session of 2022 in the US.

The rally in US airlines was sparked by a research note by Citigroup analyst Stephen Trent who said the declines due to the Omicron variant could be ‘unreasonable’.

“Nevertheless, higher vaccination rates and emerging anti-viral treatments are just some of the factors that could make negative, knee-jerk stock price reactions to the emergence of future variants look increasingly unreasonable,” Trent wrote in a research note.

IAG shares rose in a broad rally that saw most sectors gain. 79 of the 100 stocks in the FTSE 100 were higher on Tuesday morning with IAG the FTSE’s top riser.

“The best performing stocks in London were in the travel, leisure and energy sectors. Rolls-Royce, also taking off thanks to its heavy footprint in aircraft engines and spares and repairs, announced some corporate housekeeping with the completion of the sale of its Bergen Engines business,” said AJ Bell investment director Russ Mould.

“The gains for oil firms, airlines and hotel, pub and restaurant operators reflect diminished investor concern about the Omicron variant of Covid-19 amid hopes it is milder, if more transmissible, and therefore may have a limited impact on the economy and won’t require onerous or long-lasting restrictions.”

“This is not a certainty, and there is the possibility the market might change its mind on Omicron again if there are signs the sheer volume of cases threatens to overwhelm countries’ health systems.”

The FTSE 100 kicked off 2022 with strong gains on Tuesday as optimism grew around the impact of Omicron and US tech shares boosted sentiment.

The FTSE 100 was 1.27% higher at 7,478 in early trade on Tuesday.

“There is no sign of an extended New Year hangover for the UK markets. The FTSE 100 was instead in fine fettle on the first trading day of 2022, reaching new post-pandemic highs,” said AJ Bell investment director Russ Mould.

“Sentiment was helped by a strong showing on Wall Street yesterday, with Apple reaching the remarkable milestone of a $3 trillion valuation before any of its tech giant peers. Tesla also enjoyed a super-charged response to impressive fourth quarter sales report. So much for the technology sector being out of favour.

“The best performing stocks in London were in the travel, leisure and energy sectors. Rolls-Royce, also taking off thanks to its heavy footprint in aircraft engines and spares and repairs, announced some corporate housekeeping with the completion of the sale of its Bergen Engines business.”

IAG was the FTSE 100’s top riser, gaining 9.7% at the time of writing, as investors picked up shares on hopes Omicron would not be as damaging to the industry as first thought. IAG was one of the FTSE 100’s worst performing stocks of 2021 and although their were standout gains for the airline in the first session of 2021, the stock remained well below 52-week highs.

“With yet more indications that Omicron, though highly infectious, does not cause such serious illness, a wave of relief is pushing up companies which have been hit by worries about tighter restrictions,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Further evidence of optimism around the longer term impact of Omicron came from weakness in shares considered to be ‘COVID’ stocks or ones with defensive characteristics.

Ocado was off by 4% whilst Fresnillo gave up 4%.

The FTSE 100 has posted its best year since 2016.

London’s stock market closed the year 14.3% higher than the start of the year.

Shares rallied over the year amid the vaccine optimism, shrugging off fears of supply chain issues.

Global markets are ending 2021 near record highs, seeing the MSCI World Index has surge 17% this year. It fell just short of records as the discovery of Omicron caused shares to dip.

Matt Weller, global head of research at FOREX.com and City Index, commented: “Generally speaking, higher starting valuations tend to be associated with lower future returns, though that relationship isn’t particularly strong over short (< 5 year) time horizons. Of course, bulls will argue that elevated valuation ratios are justified given the low yields on bonds, unprecedented liquidity injections, and comparatively high profit margins.”

“Notably, we may already be past “peak stimulus” globally. Across the major developed economies, fiscal policymakers are rapidly looking to rein in deficits to improve their balance sheets and mitigate inflation fears. Meanwhile, most major central banks are similarly looking to “normalize” monetary policy after cutting interest rates to 0% (or below in some cases!) and instituting massive asset purchase programs in recent years.”

“At the margin, government spending and interest rates will likely provide less of a tailwind for global indices in 2022 as compared to 2021 or 2020,” he added.