Investors are rethinking at least part of Friday's brutal omicon-variant inspired selloff, with stocks and other assets rebounding as the week kicks off.
We may have the word "mild" to thank for that.
Making the rounds over the weekend was a comment by a South African doctor who first raised the alarm over the new coronavirus variant in patients, but reported "extremely mild" symptoms. While we're in the early days with this new variant, that would be positive for stocks if true, tweeted billionaire Pershing Square hedge-fund manager Bill Ackman.
But that same doctor also highlighted potential risks to older, unvaccinated patients. The bottom line, is we don't know a ton more than we did Friday and it will take awhile to figure this next stage out, though at least some of the shock may have worn off.
Until two big questions are answered, "reopening, value (especially vs. quality), and risk assets in general face this new overhang," said a JPMorgan team led by Mixo Das. Those are: what's the likelihood of severe outcomes -- hospitalization and death -- and how will the new variant respond to existing vaccines and treatments?
Our call of the day is from JonesTrading's chief equity strategist Michael O'Rourke, who sees a silver lining from Friday's selloff. "The big rally in the Pandemic Plays serves as an opportunity for trapped investors to get out," he told clients in a note on Sunday.
For example, Zoom Video (ZM) and Peloton surged around 5% each on Friday, and are slipping some in premarket action. After huge gains in 2020, those stocks are down 55% and 35% respectively year to date.
"Countless times throughout 2020 we warned against extrapolating an atypical year indefinitely into the future, yet the market did it anyway. Collectively, the group was awarded multiples that will take years and, in some cases, decades, to grow into. This should prove to be the bounce for which investors have been waiting," said O'Rourke.
The strategist reminds us that "the Bull tape does not remain down long enough to cover one's short and the Bear does not remain up long enough for longs to sell," he said.
"The policy normalization process will continue because inflation is real and does not have a hope of subsiding if the Fed does not continue the normalization process. Over the past 13 years, the FOMC has had the luxury of a benign inflation environment to allow it to seemingly respond to every equity market dip, and now that luxury is gone. As such, value is very attractive relative to growth," he said.
Oil stocks are among the value plays he sees staying in demand.
Echoing some of these thoughts, Mark Haefele, chief investment officer, global wealth management at UBS, urged investors not to act hastily, as he said the selloff was a lesson in staying diversified across markets and sectors.
"We maintain our positive view on energy and financials despite this latest bout of volatility. We think the energy sector will be supported by oil prices that are likely to remain elevated this year and next," he said.
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