(Bloomberg) — Strategists are pushing back against “peak growth” worries in markets, arguing some stocks tied to the U.S. economic reopening are oversold.
Widespread U.S. vaccinations support economic expansion and laggards such as airlines and hotels should rebound in coming months, Goldman Sachs Group Inc. strategists including David Kostin wrote in a note. Equities that suffered from risks linked to the delta Covid-19 variant, like energy, are set to rally from this week, according to Fundstrat Global Advisors LLC’s Tom Lee.
“Investors are concerned about the impact on economic growth from the delta variant, but the new strain should not pose a major market risk,” the Goldman team wrote Friday. It backs “tactical positions in virus-exposed cyclicals alongside longer-term investments in high-quality secular growth stocks.”
Key U.S. equity gauges have recovered to hit records after swooning at the start of last week when worries about the spread of the delta strain gripped investors. But other parts of the financial markets continue to flash warnings about economic growth risks from virus flareups.
For instance, U.S. 10-year real yields have fallen to a record low. Shares in emerging markets — where vaccinations are lagging and some countries have imposed curbs on mobility — are at a 17-year relative low against developed-market peers.
JPMorgan Chase & Co. strategists are also among those expecting a comeback for cyclicals. Fundstrat’s Lee predicted “a stronger, more generalized ‘risk on’” starting soon. S&P 500 sectors linked to reopening, like energy and materials, outperformed Monday as the index pushed to another all-time high.
Other commentators remain circumspect. For instance, John Briggs, global head of desk strategy at Natwest Markets, argues “volatility around growth concerns will likely remain, with markets in new ranges but in choppy trading, until we can evaluate the linkages between delta cases and hospitalizations in vaccinated nations.”
UBS Global Wealth Management wrote in a note that the delta variant worries had disproportionately impacted cyclical sectors. “We view the recent weakness as a buying opportunity as these sectors are still expected to see outsized earnings growth and valuation metrics remain attractive,” said Solita Marcelli, chief investment officer for the Americas.
(Updates with UBS Wealth comment in last paragraph.)
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