The Delta variant of COVID-19 does not pose a risk to the stock market and could help boost value and yields, JPMorgan says

• The spread of the Delta variant of COVID-19 poses no risk to the stock market, JPMorgan said in a note.
• Value stocks and bond yields are poised for a rebound as investors reassess risks of the variant.
• "The Delta variant should not have significant repercussions for the pandemic situation in developed markets due to the level of population immunity," JPMorgan explained.
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The spread of COVID-19's Delta variant does not pose a risk to the stock market, and could in-turn drive a rebound in value stocks and bond yields, JPMorgan said in a note on Wednesday.

The spread of the delta variant has been front of mind for many investors in recent weeks, as data suggests it is now the most common strain of COVID in the US. The fast spreading variant has led to a surge in cases in countries like the UK and Israel, and some governments are responding by reinstituting mask mandates and lockdown initiatives.

But "the Delta variant should not have significant repercussions for the pandemic situation in developed markets due to the level of population immunity," JPMorgan said, adding that stock market positioning should not be driven by any variant of COVID-19 for which vaccines are effective.

Both Pfizer and Moderna have said that their COVID-19 vaccines are highly effective in preventing infection of the Delta variant.

The bank pointed to market action when the B.1.1.7 variant of COVID-19 which was spreading across the country earlier this year as reason for why value stocks and bond yields should see a rebound going forward.

"When the market properly assessed the risk of B.1.1.7, yields and value staged a strong rally from mid-February to mid-March, while growth stocks (often perceived as beneficiaries of lockdowns) sold off," JPMorgan explained. "We expect this to repeat now as investors assess the so-called Delta variant," the bank added.

The current market setup with the Delta variant is similar given that growth stocks have been in favor relative to value stocks amid the spread of the new COVID strain. But if JPMorgan's analysis proves correct, that trade should unwind soon, and growth stocks should once again underperform value stocks.

"We reiterate our view to go long reflation, cyclical and value trades, and sell growth and defensive positions," JPMorgan concluded.