What’s the bigger threat to investors: omicron or the Fed?
According to Morgan Stanley strategists, the impact of the Federal Reserve’s faster tapering of asset purchases is a bigger headwind for the markets.
A Bloomberg report on Monday says Morgan Stanley’s team is “not that concerned about omicron as a major risk factor for equities.”
Instead, they warn that tapering will tighten markets and “lead to lower valuations like it always does at this stage of any recovery.”
Federal Reserve Chairman Jerome Powell recently suggested he could "wrap up" tapering a few months early as inflation remains elevated.
Brian Nick of Nuveen, the investment arm of TIAA, also said Monday that “the major risk” to their outlook is a sudden tightening of financial conditions “if central banks are forced to respond to inflation driven by an overly tight labor market,” according to the Bloomberg report.
JPMorgan and other market strategists have also singled out a hawkish turn by central banks as the main risk to their outlook for stocks over Covid-19.
Meantime, stocks closed higher on Monday, erasing last week's losses, as Wall Street moved beyond concerns about the spread of the omicron variant of Covid-19 and turned its attention toward key inflation data due out this week.
The Dow Jones Industrial Average finished up 646 points, or nearly 1.9%, to 35,227, while the S&P 500 rose 1.17% and the Nasdaq advanced 0.93%
Dr. Anthony Fauci, the nation's top infectious disease expert, said Sunday that data from South Africa, where the new variant was first discovered, shows the new variant might produce milder symptoms than previously forecast.
Still, the rapid spread continues to worry virologists worldwide.
Louis Navellier, chief investment officer at Navellier & Associates, said "longer-term, earnings are what matter, which are driven primarily by the consumer in the US and both remain in very good shape."
"The Fed repositioning is a good thing by giving them optionality they need to have a more credible 'put' if needed," he said, "and as the Fed takes away the punch bowl Congress should be stepping up with additional liquidity in the Build Back Better legislation."
Navellier said Friday’s Consumer Price Index report will be closely scrutinized and could possibly influence the upcoming December Federal Open Market Committee (FOMC) meeting.
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