The spread of the Delta variant is not likely to hurt stocks, JP Morgan says. In fact, it could help boost some asset classes.
JP Morgan downplayed the risks of the new COVID-19 Delta variant for the stock market in a note on Wednesday. The investment bank thinks the new coronavirus strain could boost value stocks and bond yields. “The Delta variant should not have significant repercussions for the pandemic situation in developed markets due to the level of population immunity,” JP Morgan said.
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The investment bank thinks that the market is overestimating the risks of renewed lockdowns. Once the risk is reassessed, the markets will shift.
“When the market properly assessed the risk of B.1.1.7, yields and value staged a strong rally from mid-February to mid-March, while growth stocks (often perceived as beneficiaries of lockdowns) sold off. We expect this to repeat now as investors assess the so-called Delta variant,” the bank explained.
Tech stocks have been the primary beneficiaries of lockdowns. If the market overestimated the risk of a lockdown, tech stocks are likely to come down.
“We reiterate our view to go long reflation, cyclical and value trades, and sell growth and defensive positions,” JPMorgan concluded.