Heres how the delta variant could impact markets and what to do, says JPMorgan – MarketWatch

https://www.marketwatch.com/story/the-delta-variant-poses-no-risk-to-markets-and-could-boost-these-stocks-says-jpmorgan-11625138492


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After notching another record close on Wednesday — its 33rd of 2021 — the S&P 500
SPX,
+0.20%

was set to eke higher to start the second half of the year. The index jumped 14% in a bullish first half of the year.

Key economic data — a manufacturing report on Thursday and nonfarm payrolls on Friday — may dictate how the third quarter begins for investors, while a meeting of the OPEC+ group of oil producers will also be closely watched.

Another factor very much in focus is the delta variant of the coronavirus that causes COVID-19, which has put European stocks under pressure in recent sessions. The variant, first identified in India, is already dominant in the U.K. and is growing in prevalence in several other countries, including Germany, Italy and France. The World Health Organization said Wednesday the variant has been detected in 96 countries, while the U.S. Centers for Disease Control and Prevention has classified it a variant ‘of concern’ and said late last month it accounts for 20% of all U.S. cases

So what does the delta variant mean for stocks?

JPMorgan strategists answered that question in our call of the day: The variant doesn’t pose risk for markets and could even provide a boost for value stocks and yields, they said in a note.

“The delta variant should not have significant repercussions for the pandemic situation in developed markets (e.g. Europe and North America, which have [made] strong progress in vaccinations) due to the level of population immunity,” said the strategists, led by chief global markets strategist Marko Kolanovic.

They said the market was reacting to delta variant fears in the same way it did to concerns around the alpha variant (B.1.1.7), also known as the U.K. variant, back in February — with a decline in yields and value stocks. But that market positioning isn’t justified, they said, and will lead to a move higher in bond yields, value and cyclical stocks, as it did earlier this year.

“The situation is similar to February’s B.1.1.7 scare, when defensive positioning (bonds, growth stocks) in anticipation of doom resulted in a month-long rally in bond yields, value and cyclical stocks, and a decline in bonds and growth stocks,” they said.

The strategists expect the same to happen this time as investors assess the delta variant. They also noted that oil, one of the most sensitive assets to COVID-19, has been unaffected by delta variant concerns.

“We reiterate our view to go long reflation, cyclical and value trades, and sell growth and defensive positions,” they added.

They came to their conclusion on the delta variant’s impact after analyzing data from 15 countries most affected by the variant in June. Only Russia recorded a marked jump in its fatality rate, but the strategists pointed out the country has only vaccinated 14% of the population.

June % change in peak COVID-19 mortality vs. vaccination rate in 15 countries most affected by the delta variant.


Source: JPMorgan Global Markets Strategy

They noted that in the U.K., for example, cases have increased by around 14,000 a day but deaths have increased by approximately nine a day. The picture is similar in Portugal, another country where cases have risen sharply — 900 a day — but deaths have increased by approximately one a day. “This is consistent with findings that vaccines effectively prevent worse outcomes in delta variant infections,” they said, noting that most deaths occurred in unvaccinated people.

The markets

U.S. stock futures
YM00,
+0.20%

ES00,
+0.27%

NQ00,
-0.28%

were mixed early on Thursday, implying a 68-point gain for the Dow Jones Industrial Average
DJIA,
+0.17%

at the open. It was also a day of gains across Europe. The German DAX
DAX,
+0.48%

was 0.3% higher and the French CAC
PX1,
+0.81%

was 0.5% up into afternoon trading, despite strong early gains. The U.K.’s FTSE 100
UKX,
+1.11%

rose 0.8%.

The buzz

Pending home sales rose 8% in May, beating the 1% decrease projected by economists polled by MarketWatch. Economists are still predicting a slowdown in real-estate transactions in the second half of 2021.

Krispy Kreme priced its initial public offering at $17 a share late Wednesday, significantly below their expected range of $21 to$24 a share.

Anyone trying to bully China will face “broken heads and bloodshed,” President Xi Jinping said on Thursday at a mass gathering marking 100 years of the ruling Communist Party.

Clothing retailer Gap said on Thursday it will close all of its bricks-and-mortar stores in the U.K. and Ireland, shifting to an online-only model.

German biopharmaceutical company CureVac
CVAC,
-7.81%

said its COVID-19 vaccine candidate was 48% effective in providing protection against the disease. The stock fell 13% in premarket trading.

Shares in Chinese ride-hailing giant Didi Global made their debut on the U.S. public market with a near 20% pop on Wednesday, but fell back to close just 1% higher than the initial public offering price.

Donald Trump’s company and his chief financial officer Allen Weisselberg have been indicted on charges related to a New York investigation into the former president’s business dealings, the Associated Press reported, citing two people familiar with the matter.

Random reads

Man breaks record for tallest stack of M&M’s.

England’s Euros win over Germany thaws tensions between Prince William and Prince Harry.

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