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Wells Fargo Bullish on Quality Stocks, Despite Omicron

'We do not recommend de-risking into weakness,' Chris Harvey, head of equity strategy for Wells, writes in a commentary.
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The omicron Covid variant hasn’t dented Wells Fargo’s enthusiasm for stocks.

“We do not recommend de-risking into weakness,” Chris Harvey, head of equity strategy for Wells, wrote in a commentary published on Monday.

“There is much we do not know about the Omicron strain, so we stick to things we think we know.” 

And what are those?

  • “It’s later in the cycle. The market is either at mid-cycle's end or late-cycle's onset, a constructive time for quality factors. We recommend adding quality exposure on market strength, not weakness.
  • “The supply chain remains strained. Don’t expect supply chain issues to fade in the near term.
  • “Inflation expectations and hawkish perceptions are dropping. On Friday, …the perception of fed funds hikes quickly reversed as investors' focus turned to omicron's impact on the global economy. If true, demand-driven inflation likely would ease.
  • “Panic doesn’t disappear overnight. … The sharp reaction suggests stress levels will take at least one to two weeks to decay.
  • “There’s no appetite for a U.S. lockdown. The average U.S. citizen has little tolerance for lockdown restrictions.
  • “Funding markets will likely slow, …as investors assess the potential fundamental impact from another possible Covid wave.
  • “At a minimum, omicron slows down return-to-office.
  • “Market illiquidity exacerbated Friday's slump.
  • "Our melt-up scenario is on pause for now, but we are not abandoning it.
  • “Be patient. Even if we have another Covid wave, it doesn’t mean equities need to trade down. We don’t recommend panic selling or repositioning.”

The S&P 500 recently stood at 4,641, up 1%. It has climbed 22% year to date.