The Omicron variant may mean that the stock market rally is on hold: Goldman Sachs

The Bull market in 2021 may be temporarily halted as investors assess the financial risk from the new Omicron variant of COVID-19, warns Goldman Sachs.

“We believe broad risk recovery may be hampered in the short term by the need to digest the prospect of a more hawkish Fed and a less consistent cyclical tailwind. Ironically, the Omicron scare itself can now create the best opportunities for relief in the coming weeks. “either because incoming news is better than feared or because it causes monetary policy makers to take a more cautious approach to austerity,” Goldman Sachs strategist Dominic Wilson said in a note Monday.

Traders went nervously on their toes back in the markets on Monday after the Dow Jones Industrial Average plunged more than 1[ads1],000 points the day after Thanksgiving. The violent sale took place when reports about the Omicron variant that spread to several countries – which led to a number of new travel bans – took hold. Concerns over the effectiveness of COVID-19 vaccines from Moderna, Pfizer and Johnson & Johnson against Omicron and other potential mutations.

The small-cap Russell 2000 Index saw its biggest one-day fall since February Friday, Wilson points out. Oil prices in the first month fell 13%. The US fixed income markets shifted from pricing in about three rate hikes in 2022 to pricing less than two.

High-risk stocks, such as Rivian, plunged, while there was an escape in safety to domestic stocks such as Zoom.

On Sunday, Germany and Italy confirmed their first Omicron cases. Dr. Anthony Fauci warned in an interview Sunday that the United States could see a fifth wave of COVID-19 infections.

Wilson is now concerned about positive news about whether the global economy may decline as the new variant takes hold, increasing the risk of further downside for equities.

“Beyond renewed downside risks from Omicron, the main short-term challenge is that the strongest cause of recent cyclical optimism – consistent positive data surprises, especially from the US – is a less obvious tailwind in the weeks ahead,” Wilson added.

The strategist’s subdued perception of stocks in the short term is repeated by others on the street, despite the fact that the crowd buying-the-dip is out in full force.

“If the situation with the Omicron variant turns out to be something that does not have a major impact on growth, we will still face a much different situation than we were during the spring and summer months. At that time, inflation was seen as temporary‚Ķ earnings estimates rose‚Ķ and the Fed was to step down slowly (and did not raise interest rates until 2023). None of these votes remain today. Therefore, the odds that the stock market will rise significantly over the coming months had already declined … and the uncertainty surrounding this new variant should further reduce these odds, “pointed out Matt Maley, Miller Tabak’s Chief Marketing Officer.

Brian Sozzi is editor-in-chief and anchor in Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

The Omicron variant may mean that the stock market rally is on hold: Goldman Sachs

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