- The rise in the S&P 500 will not be hampered by the emergence of the Omicron variant, JPMorgan analysts said.
- Seeming threats such as the new strain should be seen as "sporadic setbacks," they added.
- Instead, they view a hawkish shift in the Fed's policy as a key risk to their outlook.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell
The rise in the S&P 500 will not be hampered by the emergence of the Omicron variant despite the recent stock market pullback, JPMorgan Chase analysts said in a note Tuesday.
They even see a 9% gain for the benchmark index to 5,050 by the end of next year on the back of robust earnings growth as supply shocks cool, consumer spending habits normalize, and the US labor market recovers, among other factors.
Most of the equity upside should be realized between now and the first half of 2022, when monetary and fiscal tailwinds will be strongest, said strategists led by Dubravko Lakos-Bujas and Mislav Matejka. That will be followed by sideways action in the second half of next year.
Seeming threats such as the Omicron variant should be seen as "sporadic setbacks," they said, citing higher natural and vaccine-acquired immunity, lower mortality, and new antiviral treatments.
Instead, what the strategists view as a key risk to their outlook is a hawkish shift in the Federal Reserve's policy amid persistent inflationary pressures as well as a further delay in the reopening of China.
In light of this, they recommended investors "retain a pro-cyclical tilt" with a focus on energy and financials, consumer services, and small caps. They expect European equities to outperform the US, and China stocks to fare better than emerging ones.
The new coronavirus strain prompted a massive sell-off Friday after the World Health Organization labeled the variant Omicron. US stocks bounced back Monday but traded lower Tuesday after Moderna's CEO told the Financial Times "there is no world" in which vaccine effectiveness is the same against Omicron as against the Delta variant.