How Much Of An Impact Could The US COVID-19 Delta Surge Have On Stocks?

The Delta variant of COVID-19 has created another wave of cases in the U.S. and produced growing volatility in stocks that were heavily impacted during the original pandemic shutdowns in 2020.

Some investors are growing increasingly concerned that the current spike in COVID-19 cases could trigger a broad market sell-off, but LPL Financial Asset Allocation Strategist Barry Gilbert said this week the market impact of the delta variant will likely be very limited compared to the original sell-off in March 2020.

Near-Term Risks: First, Gilbert said the world is in a much different place today than in nearly 2020. We now have multiple effective COVID-19 vaccines, we know how the virus is transmitted and we are much better at treating it.

Still, Gilbert said the Delta outbreak will likely weigh on U.S. economic growth in the near term. LPL is projecting third-quarter U.S. GDP growth could fall “a few percentage points,” but Gilbert said that growth will simply be pushed to the fourth quarter or 2022.

At this point, Gilbert said Americans will likely not see a new wave of shutdowns. Instead, he expects mask mandates and social distancing measures will likely be reimplemented in locations that most need them.

Another potential impact of the Delta variant will be supply chain disruption, which could exacerbate existing shortages and create additional pricing pressures in certain goods, Gilbert said.

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Buy The Dip: The good news for investors is that the stock market is forward-looking, and Gilbert said any major drop in the SPDR S&P 500 ETF Trust SPY is likely a buying opportunity. Ultimately, he said investors should be concerned about the Delta variant in the short term, but its impact on the stock market will likely be limited.

“There are still increased risks to growth and we may see patches of market volatility, but we believe any meaningful dip in equity markets should still be viewed as an opportunity to add risk for appropriate investors, and may also provide opportunities to rebalance portfolios toward reopening beneficiaries,” Gilbert wrote.

Benzinga's Take: The March 2020 stock market sell-off was one of the best buying opportunities in many years for stock investors. There will likely be plenty of buyers rushing into the market if it experiences a Delta-related dip, which could limit the market downside even if the current outbreak becomes more severe than anticipated.

Photo: Anna Nekrashevich from Pexels