According to JPMorgan Chase & Co., the current market instability triggered by the advent of the omicron virus strain may provide investors with an opportunity to plan for a trend reversal in reopening and commodities trading.
While omicron is expected to be more transmissible, early indications show it may also be less deadly, which would correspond with the historical trend of virus development, according to strategists Marko Kolanovic and Bram Kaplan. According to them, this might eventually be a good for risk markets because it could signify that the pandemic’s conclusion is near.
“Omicron might be a catalyst for the yield curve steepening (not flattening), rotation from growth to value, selloff in Covid and lockdown beneficiaries, and rally in reopening themes,” according to the analysts. “We see the recent selloff in these areas as an opportunity to purchase cyclicals, commodities, and reopening themes on the cheap, as well as position for higher bond yields and steepening.”
In recent days, the revelation of a new virus strain has roiled markets, with countries around the world tightening travel restrictions. While some health professionals have predicted that a decision may take weeks, Australia’s Chief Medical Officer, Paul Kelly, has stated that there is no evidence that it is more dangerous than previous strains.
As the pandemic has progressed, Kolanovic, who joined JPMorgan as chief global markets strategist earlier this year, has argued for reopening deals and defending value stocks. He’s also claimed that the market’s reaction to the threat of the delta variant was exaggerated.
It would correspond with past patterns for a less severe and more transmissible virus to swiftly crowd out more severe strains, potentially turning omicron into a catalyst for turning a fatal pandemic into something more akin to seasonal flu, according to the JPMorgan analysts.
“In that situation, rather than skipping two letters and designating it omicron, the WHO could have skipped all the way to omega,” the strategists added.