Strategists urge investors to look through omicron volatility and
A trader works inside a booth on the floor of the New York Stock Exchange (NYSE), November 8, 2021.
Brendan McDermid | Reuters
LONDON — Stock markets could be facing several weeks of volatility following the emergence of the omicron Covid-19 variant, but strategists and economists are cautioning investors against hasty action.
Global stocks sold off sharply on Friday as news of the variant, and its potentially concerning mutation profile, spread. U.S. and European equities recouped some losses on Monday but futures turned lower again Tuesday amid fears about the efficacy of vaccines when faced with the omicron variant.
Health officials have said it could take several weeks to understand whether the new strain can evade existing vaccines and antibodies, and how severely it affects those infected.
In the meantime, however, many countries have imposed new travel restrictions, and strategists suggested on Monday that the market will remain attuned to ongoing research into the variant in the near term, sparking volatility.
But although Friday marked the worst pullback in equity markets of 2021, strategists and economists do not yet see a case for a sustained decline, and have broadly advised clients to focus on the long-term fundamentals of the recovery.
‘Still favor equities’
In a note Tuesday, Jean Boivin, head of the BlackRock Investment Institute, said: “We stay invested for now as a new virus strain and European COVID surge are hurting risk sentiment. Any delay of the powerful restart now means more later.”
Boivin acknowledged that a new, highly contagious, Covid strain could hit growth, worsen risk sentiment and have a “significant sectoral impact.”
“We are concerned about the human toll and expect renewed restrictions on activity. We still favor equities for now, but would change our stance if vaccines or treatments were to prove futile,” he added. “If they are effective, the strain only delays the restart of economic activity, and we would lean against any stock market pullbacks. Less growth now means more later.”
Financials, health care, energy
Mark Haefele, chief investment officer for global wealth management at UBS, said in a note Monday that omicron was unlikely to warrant a change in the belief that the global economy is on a bumpy road to recovery, and that growth will be robust.
“We advise against hasty shifts in investment strategy and recommend staying invested. The market reaction may have been exacerbated by relatively low liquidity in Thanksgiving week, and volatility could remain elevated in the days to come as systematic investors readjust positioning,” Haefele said.
“A period of market volatility after such a strong rally should also not come as a major surprise. But it does serve as a reminder of the value of being diversified across markets and sectors.”
On a sector basis, Haefele is positive on financials and energy. He expects oil prices to remain elevated through 2021 and 2022, with international benchmark Brent crude hitting $90…
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