More broadly, another pandemic wave, by slowing economic growth, could make it even harder for companies to maintain current extraordinarily high margins.
Last week, the Bureau of Economic Analysis reported that adjusted after-tax profits in the third quarter reached 11.0% of GDP, establishing a record high in a quarterly series which goes back to 1947. This was achieved through strong revenue growth and relatively suppressed levels of compensation, interest and tax expense. Even if another pandemic wave slows the economy in the months ahead, it would be unlikely to prevent strong increases in wages or derail a gradual increase in interest and tax expense.
It is still too early to assess the seriousness of the public health threat posed by Omicron. However, for investors, while Omicron could slow a return to normality, it is unlikely to halt it, and, rather than trying to navigate the impacts of another pandemic wave, it probably makes more sense to take a hard look at relative valuations and which areas of markets will likely fare best when we are truly and finally in a post-pandemic environment.
David Kelly is chief global strategist at JPMorgan Funds.