Where we left off before Christmas? A record session for the S&P 500 and so-so action from tech stocks.
Driven by more hawkish central banks, the omicron coronavirus variant, forced deleveraging, poor year-end liquidity and general bearish sentiment, investors are “back to paying record premium” for low-volatility stocks, such as safe-haven and mega cap names. That has led to “sharp derisking and outright bear market” for higher-beta value and growth stocks, said a team led by the bank’s chief equity market strategist, Dubravko Lakos-Bujas.
As for the current worries dragging the high-beta stocks south, JPMorgan strategists said the “market has taken the hawkish central bank and bearish omicron narratives too far.” They don’t see the Fed as behind the curve, and expect inflation pressures to normalize in coming months and quarters, and they don’t see a big growth hit from the omicron variant.
“We expect the upcoming ‘January effect’ to be even more pronounced this time around given extreme positioning and sentiment, with a potential for a large High Beta squeeze. Funding could come from increasingly crowded low vol. stocks where investors are again paying record premium for that shelter,” said Lakos-Bujas.
That’s as thousands of flights were canceled across the globe over the weekend — shares of American AAL, , Delta DAL, +0.43% and United Airlines UAL, +0.67% are falling in premarket — while holiday cruises are also getting complicated. Shares of Carnival CCL, -0.24% are off nearly 4%.