Investors should buy the Omicron-led decline in the stock market because a new alternative could hasten the end of the pandemic, JPMorgan says

Stocks have risen sharply over the past year, helping the Dow Jones Index finally break the 36,000 mark.

  • The S&P 500 is down about 5% since the novel coronavirus variant Omicron was identified.
  • But investors should buy the dip because Omicron may speed up the end of the pandemic, according to JPMorgan.
  • “Omicron could be a catalyst to rotate from growth to value, selling in COVID and lockout recipients and gathering in reopening topics,” JPMorgan said.

The Omicron led decline in stock market It represents a buying-capable pullback for investors, according to a note Wednesday from JP Morgan Marko Kolanovic.

with the Standard & Poor’s 500 Having fallen nearly 5% from its recent high, investors are looking for clarity regarding the transmissibility and lethality of the new COVID-19 variant, and whether current vaccines will protect against the disease.

Some on Wall Street have highlighted Omicron’s worst-case scenario, but Kolanovic feels the current data should not ring alarm bells just yet.

“Cases in South Africa are close to the epidemic average, COVID deaths are near the bottom, which is a fairly favorable situation for the past two years,” he explained.

And while investors seem to be coming to terms with the idea that the Omicron variant may not be as much of a threat as originally thought, many are concerned about an overreaction from governments, with travel restrictions being the biggest concern.

For example, Kolanovic noted that flights are banned from many African countries that do not have Omicron, but are not restricted from European countries with cases.

But if Omicron eventually turns out to be a less lethal strain, it could “prove to present a positive risk to markets,” according to the note. That’s because if the new variant crowds out more deadly variants, it could hasten the end of the pandemic and turn COVID-19 into something similar to seasonal flu.

“This development would be consistent with historical patterns of previous respiratory virus epidemics, particularly given the wide availability of new vaccines and treatments that are expected to act on all known variants,” Kolanovic said.

This type of scenario would represent a buyable decline in the stock market for investors, particularly in cyclical stocks tied to reopening the economy rather than stay-at-home growth stocks that have thrived during the pandemic.

“We are looking at the recent sell-off in these sectors as an opportunity to buy the dip in cyclical indices and commodities and reopen topics, and to identify rising and declining bond yields,” Kolanovic concluded.

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