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Market strategist: Investors ‘don’t want to overreact’ amid Omicron uncertainty

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Meera Pandit, Global Market Strategist at JPMAM, joins Yahoo Finance Live to discuss the impact of Omicron variants on investments.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: Where to hide out as the markets enter rocky waters is a question most investors are asking themselves right now. As we sit here, growth stocks are getting hit. Value names can't catch a bid. And in Wall Street lingo, it's a true risk off environment as we're seeing in the futures today.

Let's bring in Meera Pandit, Morgan Asset Management Global Market Strategist to help make sense for this all. Mira, good to see you here. So where could one hide out in this environment?

MEERA PANDIT: I think it's important that investors do not overreact in the environment we're in right now. We are in very early days of learning about this variant still, we don't know about its severity, its contagiousness, the efficacy when it comes to vaccines. So we don't want to overreact at this point or broadly reposition portfolios because there's so much that we just don't know.

So I think that right now what we're really focused on is balance in portfolios. And as we look into next year, really focusing on areas with strong earnings. I think from that perspective, there's opportunities in both value and growth. We've seen a little bit less of a sell off in tech stocks, and that tends to be an area where people look for refuge during some of these challenging times.

But equally with rates now below 1.5% this morning, with growth still likely to be strong, and inflation rising, we're going to see rates perk back up, and that should be a good opportunity for some of the more cyclical areas of the market when we think about a slightly longer time frame than just the first few days as we're learning new information on the variant.

BRIAN CHEUNG: Hey, Meera. Brian Cheung here. One place where people might be overreacting is trying to draw a tie between this new variant, which we don't really have the full details on to Fed policy. Based off of what you know so far, do you think this affects Jay Powell's thinking as we kind of get 40 minutes out from him speaking, but as we get away from any sort of commentary from the central bank?

MEERA PANDIT: It would behoove the Fed to be as consistent and orderly as possible with the tapering plans. Just a week ago, there was a lot of market chatter that, perhaps, we could see a more hawkish Fed and we could see an acceleration of the tapering plans. And what it seems like from some of his comments earlier and what we're probably going to hear in about an hour's time is that the Fed, perhaps, could shift to be a little bit more patient, a little bit less aggressive on the tapering.

But, ultimately, the tapering is going to end around the same time, whether they accelerate it by a few months or slow it down. And ultimately, the challenge with changing the timeline too much on the tapering is that you could see a lot of interest rate volatility in the months ahead because, of course, investors are paying attention to that tapering timeline to think about lift off from rates.

And, ultimately, when we think about lift off, it's likely that the Fed is going to be a little bit more patient than what the market is currently expecting. Because 2022 is really going to be that year of transition in which we start to see growth rates slow, inflation starts to break, we see consumer demand wane a little bit. And in that environment, perhaps, the Fed is going to want to be a little bit more patient as that data shifts.

JULIE HYMAN: Meera, it's Julie here. At the same time, with Omicron, it's so tough, right? Because we're gaming out stuff that we don't know the answers to yet. But if we do have the variant hit in Asia or affect sort of factory shutdowns there, are you yet thinking about it? Is it too early to think about supply chain effects from manufacturers in Asia?

MEERA PANDIT: It's not too early. I think what we're likely to see is a prolonging of some of the dynamics that we're grappling with right now. Because what we could see, to your point, is some challenges from a production standpoint abroad with greater lockdowns and more activity restrictions. And that's going to put more pressure on supply chains.

But ultimately, we did expect that supply chains would continue to be challenged into 2022, so it doesn't broadly change that outlook. And we are seeing some green shoots that, hopefully, the worst is behind us when we think about some of the auto manufacturers reporting some more improvement in flow on semiconductors, when we see shipping freight rates start to come down, some of those delays at ports start to come down, rebound in wholesale inventories.

So we are seeing some good news here while the new variant, potentially, could elongate some of the challenges we're seeing. I don't think we're going to face a whole new set of challenges.

JULIE HYMAN: And so, Meera, do you think, though, that inflation has peaked already here in the United States? And whether or not it has, are you guys putting on sort of inflation hedging sorts of trades? And how long might you need to do that kind of strategy?

MEERA PANDIT: It is likely that inflation has peaked, but that doesn't necessarily mean it's likely to come down that quickly any time soon. And, in fact, maybe I would use the word plateaued at an elevated level because we're not likely to see a meaningful break in inflation until into 2022.

But probably by the second half of the year, we're going to start to see inflation start to come down more meaningfully. And, in fact, some of the median expectations for the end of the year next year from forecasters is at about 2.5% on inflation. So we'll see how this tends to progress. Ultimately, we do want to be mindful of inflation in terms of how we're positioning portfolios. But, again, in an environment where inflation is high, but growth is also strong, earnings are strong, and rates are likely to be on the rise again, that does tend to lend itself to different areas of the equity market.

BRIAN SOZZI: Meera, is cash a good investment in this volatile environment?

MEERA PANDIT: The challenge with cash is that particularly with such high inflation ultimately in your portfolio, it is eroding purchasing power. So I wouldn't flock to cash just because there is uncertainty. We tend to see within the equity market some of the more defensive areas with good profitability, like technology, like health care tends to be good tilts.

We still have some degree of bond exposure, of course, for environments precisely like this. I don't think it is the right time for cash, given the fact that the fundamental backdrop of the economy is still pretty solid. So even if this variant does elongate some of the challenges we see, it's not really shifting our outlook meaningfully for 2022.

BRIAN SOZZI: Shaping up to be a fun December. Meer Pandit, JP Morgan Asset Management Global Market Strategist. Good to see you. Have a good rest of the week. All right, shaping up to be another volatile session as well for the markets as traders assess new risks from the pandemic. We'll be right back with a look at what stocks are seeing heavy interest on the Yahoo Finance platform. Stick around.