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By 
July 26, 2021 at 02:41 PM
What You Need to Know
- Equity strategists say the recent surge in infections will not have a major effect on economic growth.
- Companies had a strong earnings season during the second quarter as they continued to beat estimates.
- Stock markets will be watching what Fed policymakers announce after their meeting this week.
The resurging COVID-19 infection rate should not derail the continued U.S. stock market rally, according to a number of stock strategists.
“Investors are concerned about the impact on economic growth from the Delta variant, but the new strain should not pose a major market risk,” write Goldman Sachs equity strategists led by David Kostin in their latest weekly market note. “Vaccinations, equity demand from households and corporations, and attractive relative valuations will support equity inflows and prices.”
Hospitalization and death rates are also relatively contained, despite the surge of infections, and U.S. earnings growth remains robust, writes Solita Marcelli, chief investment officer for Americas at UBS Global Wealth Management in a recent note.
“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,” writes Marcelli, referring to cyclical sectors such as consumer discretionary, energy, financials and industrials.
Kostin and his colleagues recommend tactical purchases of airlines and hotels as well as energy — “virus-exposed pockets of the market” that “remain underwater” due to fears that the latest pandemic wave will weigh on economic growth. Longer term, Goldman strategists are recommending “high quality secular growth stocks” because the “high pricing power” of those stocks should prevail as GDP growth decelerates.
A Strong Earnings Season
Nicholas Colas, co-founder of DataTrek Research, says strong earnings reports, running well ahead of Wall Street expectations, are another reason for stocks to trade higher and why U.S. large cap stocks especially have “so resoundingly shrugged off global pandemic concerns.”
