The rise of a new Covid variant has Wall Street pros warning of more volatility for the market, but not necessarily an impending bear market. Stocks sold off sharply around the world on Friday as investors cut risk exposure following news of the new variant, which the World Health Organization has named omicron. There is still not much known about the new variant, but Wall Street's top strategists and economists are having to adjust their outlooks as new information unfolds. Here's a look at what major banks were saying about the new variant on Monday morning. Goldman Sachs Chief economist Jan Hatzius examined four scenarios for the global economy going forward based on the potential outcomes for the new variant. In one of the downside scenarios, the variant proves slightly more contagious and effective at evading vaccines than delta and causes another wave of infections in early 2022 but doesn't make major changes to long-term economic forecasts. "We are not making Omicron-related changes to our forecasts until the likelihood of these scenarios has become somewhat clearer." Wells Fargo Senior equity analyst Chris Harvey projected more market volatility this week and that omicron would likely extend issues in the supply chain and the return-to-office trend. However, he cautioned against making major investment decisions until more is known. "Bottom line: We do not recommend de-risking into weakness." Credit Suisse Strategist Andrew Garthwaite remained overweight on equities, saying that the recent sell-off could reverse itself once more is known about the variant. "The unknowns remain very high but our base assumption is that it is more transmissible and that vaccinations will maintain some efficacy even if reduced. It will take probably two weeks to find data on vaccine effectiveness, mortality rate, and transmissibility. Uncertainty typically causes prices temporarily to trade cheaply in our opinion ... in the past 18 months such scares have been short lived (alpha, beta, and delta variants each caused very short-lived selloffs)." RBC Capital Markets Strategist Lori Calvasina said that the new variant could hamper the sectors that are more tied to the economic recovery and cause investors to look toward larger companies that are seen to have safer growth paths. "Because of all of this, the big risk we see right now is that escape velocity for the Value, Cyclical, and Small Cap trades may simply take more time to achieve. While volumes were light in the holiday-shortened trading session, it should be noted that Friday's stock market reaction reflected true fear." Deutsche Bank Economist Phil O'Donaghoe warned that more volatility could be in store in the weeks ahead, but noted that commentary from drugmakers about the ability to alter the vaccines could help to limit the damage long-term. "Plenty of media commentary on what is known so far about the variant, but bottom line is: very little. The market reaction Friday suggests markets will be sensitive to news, good or bad, as it develops over coming days and weeks." UBS Global Wealth Management Chief investment officer Mark Haefele also cautioned investors about making major moves until more is known about the variant, but did point out that the variant could alter the tightening path from central banks. "Given currently available information, our base case is that the omicron variant does not warrant a change in our view that the global economy is on a (bumpy) road to full reopening and that growth will be robust. It is also worth noting that concerns about COVID-19's impact on the growth outlook should also reduce investor concerns about premature tightening of monetary policy." Citi Strategist Robert Buckland did not address the uncertainty around omicron directly but said that the overall environment for stocks is still strong and investors should consider buying the dip. "With sentiment frothy, valuations extended, monetary policy tightening and bad Covid news accumulating and yet global equity indices hitting all-time highs, a market sell-off seems logical. However, our global Bear Market Checklist (7.5/18 red flags) is not yet especially extended, so we would buy into any dip." -CNBC's Michael Bloom contributed to this report.
A man wearing a protective face mask walks by 14 Wall Street in the financial district of New York, November 19, 2020.
Shannon Stapleton | Reuters
The rise of a new Covid variant has Wall Street pros warning of more volatility for the market, but not necessarily an impending bear market.