Global equities began the week with a selloff on concerns that the rebound in COVID-19 cases could weigh on consumer sentiment and lead to a slowdown in economic growth. While the Delta variant is a market risk, at this time, we consider it a low market risk. Instead, as we have noted throughout this year, our bigger market concerns center around peak economic growth, rising inflation and a slowdown in the Chinese economy. As investors weigh these threats to the current high valuations in both the stock and bond markets, we expect volatility levels to rise.
Today, stock markets opened sharply lower as investors are growing more concerned that we could now be seeing peak economic growth and that the reopening trade may be over. Though we consider it a low risk at this time, the Delta variant is still a concern to the financial markets as evidenced by the investor response today. Increasing Covid-19 cases raise the possibility that governments worldwide may respond by imposing restrictions that may derail the current global recovery. Though there could be an economic impact, we don’t think it will be as bad as previous waves since consumers have learned to adjust to virus restrictions. Furthermore, while there seems to be a rise in so-called “breakthrough cases,” or vaccinated people who have tested positive for the virus, indications suggests that Covid-19 is a low risk to the vaccinated population. For example, the evidence so far suggests that vaccines have greatly reduced both hospitalizations and deaths caused by it. But with all this said, markets remain concerned that consumer spending patterns and labor market dynamics may be influenced by the new surge in cases. Even if fully vaccinated people face a reduced risk, domestically here in the U.S. only about half of the population is fully vaccinated and vaccinated people may adjust their behavior.
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Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.
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