While “not that concerned about omicron as a major risk factor for equities,” the strategists led by Michael Wilson see headwinds building elsewhere, after Federal Reserve Chairman Jerome Powell signaled the possible accelerated tapering of asset purchases. “Tapering is tightening for the markets and it will lead to lower valuations like it always does at this stage of any recovery,” the strategists wrote in a note to clients.
Brian Nick of Nuveen, the investment arm of TIAA, with $1.3 trillion in assets under management, also said Monday that “the major risk to our outlook remains a sudden tightening of financial conditions if central banks are forced to respond to inflation driven by an overly tight labor market.” In contrast, most of the economic and market risks associated with the virus “are behind,” according to Nuveen’s outlook for 2022.
Other strategists, including those at JPMorgan Chase & Co., have also singled out a hawkish turn by central banks, and not Covid-19, as the main risk to their outlook for stocks. But while JPMorgan reiterated on Monday that its base-case scenario is for the equities rally to continue into next year, Morgan Stanley sees the S&P 500 trending lower, and valuations declining.
There is rising enthusiasm that the omicron variant is more transmissible, but less deadly than its predecessors. That lends further credence to the view the COVID virus is following the established pattern of becoming less deadly over time. From an evolutionary perspective, transmissibility is preferrable to killing the host, so this progression makes sense.
That suggests the end point of the pandemic is in sight. In just the same way we have vaccines and early treatment options for the flu, we will have the same for COVID possibly as soon as the next few months. The “bad flu” conclusion will be vindicated even if it depends on evolution to get there. That’s also the view of a group of doctors I had brunch with yesterday morning.Click HERE to subscribe to Fuller Treacy Money Back to top