Barclays, UBS Say Neither Fed Nor Virus Will Derail This Rally

(Bloomberg) -- More hawkish rhetoric from the Federal Reserve and the spread of the omicron variant are unlikely to derail the rally in stock markets, strategists at Barclays Plc and UBS Global Wealth Management said Tuesday, adding to a chorus of bullish calls after a turbulent few weeks. 

The “global economy has learned to live better with each wave of Covid, and we expect the pattern to broadly stay consistent with this variant,” Barclays strategists led by Matthew Joyce wrote in a note to clients. And while the Fed has “reset expectations” in recent weeks with regard to withdrawing its stimulus, it “is unlikely to over-deliver on the rate hikes already priced in,” according to the strategists.

European stocks gained as much as 2% on Tuesday, the biggest intraday advance since March, while U.S. equity futures-contracts also rallied. The rebound follows weeks of heightened volatility after the emergence of the omicron strain of the coronavirus and warnings by Fed Chair Jerome Powell that it may taper its asset purchases at an accelerated pace.  

“Our base case is that the market focus will shift back toward the positive outlook for economic growth and earnings,” Mark Haefele, chief investment officer at UBS Global Wealth Management said. “Investors should consider whether now is a good opportunity to add some of the winners from global growth that have been most negatively affected in recent days – including the Eurozone, Japan, energy, and financials.”

European and U.S. stocks have rallied to successive record highs this year, on the back of an inoculation campaign against the virus, stimulus measures and a robust economic recovery from the pandemic-induced slump. The base-case scenario for most strategists is that omicron won’t lead to new lockdowns, and thus its impact on economic activity and stock markets will be negligible. 

The Fed’s push to tighten liquidity has been a more major source of concern, with Morgan Stanley singling it out as the biggest headwind for equities, and Goldman Sachs Group Inc. warning investors of more volatility into the end of the year. 

©2021 Bloomberg L.P.