By Barbara Kollmeyer
Cue the selling again.
Moderna /zigman2/quotes/205619834/composite MRNA -4.09% CEO Stéphane Bancel brought the mood down early Tuesday with a prediction that current COVID-19 vaccines will struggle against the omicron coronavirus variant, due to its high mutations, and that it will take months to mass produce new immunizations.
“There is no world, I think, where [the effectiveness] is the same level…we had with delta,” he told the Financial Times , adding that “all the scientists I’ve talked to…are like ‘this is not going to be good.'”
Initial reports of “mild” symptoms among some South African patients helped cheer markets on Monday. “In reality, the evidence is still incredibly limited on this question, and nothing from the Moderna CEO overnight changes that,” said strategist Jim Reid and his team at Deutsche Bank, whose poll showed just 10% of investors see the variant as a major market threat by year-end.
Indeed, the show must go on, with Wall Street banks continuing to churn out forecasts for the coming year. In our call of the day , JPMorgan predicts a 5,050 finish in 2022 for the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.54% , which matches RBC’s forecast and looks among the most optimistic on Wall Street so far.
A JPM team led by Dubravko Lakos-Bujas, chief U.S. equity strategist, sees further stock upside ahead, albeit more moderate, on better-than-expected earnings growth, easing supply shocks, improved background on China (which JPM upgraded to overweight on expectations for policy easing and as equity risk premiums from regulatory moves are priced in) and emerging markets, normalizing consumer spending habits and, most important, accommodative central banks.
The team offered some comfort over recent market stress. “While there have been sporadic setbacks with COVID-19 variants (e.g. delta, omicron), this needs to be seen in the context of higher natural and vaccine-acquired immunity, significantly lower mortality, and new antiviral treatments,” said the team, which hammered home the important role of central banks.
“With this in mind, the key risk to our outlook is a hawkish shift in CB [central bank] policy, especially if post-pandemic dislocations persist (e.g. further delay in China reopening, supply-chain issues, labor shortages continue),” said Lakos-Bujas and the team.
The bank sees “broadly accommodative” Federal Reserve policy despite tapering, and especially ahead of next November’s midterm elections, with an extra $1.1 trillion in developed market central bank balance sheet expansion through 2022. It expects “inflation rotation rather than broad-based accelerated in prices,” and sees record corporate liquidity driving capital investment, shareholder returns and mergers and acquisitions.
Most of the upside for U.S. stocks should be seen between now and the first half of 2022, “when monetary and fiscal policy tailwinds will be strongest, followed by sideways action in 2H22,” when Fed liftoff could drive some de-risking and intra-cycle correction.
As for stocks and sectors, the bank likes long equity exposure to rising oil prices (the bank predicts oil prices will hit $150 by 2023 ), financials, consumer services, healthcare and small-caps. The travel, leisure and experiences theme has “extremely attractive risk-reward, while momentum is “again getting increasingly correlated and crowded with growth stocks,” the bank cautioned.
A few stocks that ended up on its charts included a batch of global beneficiaries of easing supply-chain pressures — Dollar Tree /zigman2/quotes/203712248/composite DLTR +0.55% , Tapestry /zigman2/quotes/207417762/composite TPR +0.76% , Johnson Controls /zigman2/quotes/203776087/composite JCI -1.31% , Masco /zigman2/quotes/202412472/composite MAS -1.25% , Under Armour /zigman2/quotes/204420722/composite UAA -0.06% and Tyson Foods /zigman2/quotes/201117502/composite TSN -0.62% . Among those that stand to benefit from a global reopening in services are Disney /zigman2/quotes/203410047/composite DIS +1.36% , Las Vegas Sands /zigman2/quotes/208792014/composite LVS -4.62% and Expedia /zigman2/quotes/202291990/composite EXPE -3.31% . Beneficiaries of higher oil prices include Halliburton /zigman2/quotes/210488727/composite HAL +0.10% , Baker Hughes /zigman2/quotes/205323712/composite BKR -0.80% and Occidental Petroleum /zigman2/quotes/207018272/composite OXY +0.54% .
Stockd /zigman2/quotes/210598065/realtime DJIA -0.02% /zigman2/quotes/210599714/realtime SPX -0.54% /zigman2/quotes/210598365/realtime COMP -1.40% are under pressure , a day after staging a partial comeback from Friday’s meltdown. European stocks /zigman2/quotes/210599654/delayed XX:SXXP -1.58% are under pressure , with oil /zigman2/quotes/209723049/delayed CL00 +0.73% down over 2%, and investors taking shelter in gold /zigman2/quotes/210034565/delayed GC00 -0.35% , the yen /zigman2/quotes/210561789/realtime/sampled USDJPY +0.2106% and bonds /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.01% .