Investors should buy the Omicron-led dip in the stock market because the new variant might accelerate the end of the pandemic, JPMorgan says

• The S&P 500 is down almost 5% since the new Omicron coronavirus variant was identified.
• But investors should buy the dip because Omicron might hasten the pandemic's end, according to JPMorgan.
• "Omicron could be a catalyst for rotation from growth to value, selloff in COVID and lockdown beneficiaries and rally in reopening themes," JPMorgan said.

The Omicron-led decline in the stock market represents a buy able dip for investors, according to a Wednesday note from JPMorgan's Marko Kolanovic.

With the S&P 500 down almost 5% from its recent high, investors are looking for clarity as to how transmissible and deadly the new COVID-19 variant is, and whether current vaccinations will protect against the disease.

Some on Wall Street have been highlighting worst-case Omicron scenarios, but Kolanovic feels current data shouldn't ring alarm bells just yet.

"South African cases are near the pandemic average, and COVID fatalities are near the bottom, a fairly favorable situation relative to the past two years," he explained.

And while investors seem to be coming around to the idea that the Omicron variant may not be as big of a threat as originally thought, many are concerned about an overreaction from governments, with travel restrictions the biggest concern.

For example, Kolanovic pointed out flights are restricted from several African countries that don't have Omicron, but they're not restricted from European countries that do have cases.

But if Omicron ultimately is found to be a less lethal strain, it could "prove to be a positive risk for markets," according to the note. That's because if the new variant crowds out more deadly variants, it could accelerate the end of the pandemic and turn COVID-19 into something similar to the seasonal flu.

"That development would fit with historical patterns of previous respiratory virus pandemics, especially given the broad availability of vaccines and new therapeutics that are expected to work on all known variants," Kolanovic said.

That type of scenario would represent a buyable dip in the stock market for investors, especially in cyclical stocks tied to a reopening of the economy rather than stay-at-home growth stocks that thrived during the pandemic.

"We view the recent selloff in these segments as an opportunity to buy the dip in cyclicals, commodities and reopening themes, and to position for higher bond yields and steepening," Kolanovic concluded.