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Illustration: Aïda Amer/Axios

Wall Street is pinning its bets of an economic rebound this year on mass vaccinations and a virus brought under control, but new coronavirus strains threaten that sunny outlook, a number of firms are warning.

Why it matters: None downgraded growth forecasts because of the variants, but they’re acknowledging there’s a new asterisk to the anticipated economic recovery.

Driving the news: British Prime Minister Boris Johnson said Friday the country’s more contagious variant is also more deadly — research that the U.K. scientists say is still uncertain and the Centers for Disease Control and Prevention plans to review, as CNN reports.

  • Anthony Fauci said last week vaccines appeared to be effective against the mutated coronavirus. But he also warned of non-peer-reviewed studies that raised the possibility that the vaccines may be less potent against the variants — including one first found in South Africa.

What they’re saying: Goldman Sachs economists said over the weekend the “evolution of a vaccine-resistant virus strain” could push off the explosion in consumer spending expected to fuel the economic recovery.

Echoing that sentiment...

  • Barclays: “[N]ew virus variants seem more contagious and potentially also more resilient to existing vaccines ... making for a delayed and less linear path towards a ‘restriction-free’ economy,” per a note out on Friday.
  • MUFG: Coronavirus variants are “obviously ... headwinds for economic activity,” rates strategist John Herrmann wrote on Friday, though he noted the recovery still has “strong tailwinds.”
  • Colin Teichholtz, head of markets at Element Capital Management, one of the world's biggest macro hedge funds, tells the Financial Times ...“What you are seeing in the UK today you will see over much of continental Europe, and I don’t think markets [and] ... policymakers are really grasping that,” referring to the variant’s spread.

Yes, but: If there’s a backslide, the Fed has signaled it would step in — vowing to support financial markets and the economy until the recovery is on solid footing.

  • Plus, Wall Street shops have pushed up economic growth estimates for this year, citing the expected flood of fiscal stimulus.

What’s next: The Fed caps off its two-day policy meeting with a press conference on Wednesday.

  • No policy changes are anticipated, though Fed chair Jerome Powell is expected to reassure investors that the Fed won’t back off its bond-buying program anytime soon — and when it does, there will be plenty of notice.

Go deeper

Jan 29, 2021 - Health

J&J says its one-shot vaccine is 66% effective against moderate to severe COVID

Photo: Thiago Prudêncio/SOPA Images/LightRocket via Getty Images

Johnson & Johnson announced Friday that its single-shot coronavirus vaccine was 66% effective in protecting against moderate to severe COVID-19 disease in Phase 3 trials, which was comprised of nearly 44,000 participants across eight countries.

Between the lines: The vaccine was 72% effective in the U.S., but only 57% effective in South Africa, where a more contagious variant has been spreading. It prevented 85% of severe infections and 100% of hospitalizations and deaths, according to the company.

Jan 29, 2021 - Health

Ex-CDC director Tom Frieden on the next COVID-19 vaccines

Americans fortunate enough to receive COVID vaccines now, outside of clinical trials, are getting shots made by either Pfizer or Moderna. But newly released data from Novavax and Johnson & Johnson suggests that more vaccines could be on the way, with J&J's requiring a single dose.

Axios Re:Cap digs into the news and why it matters with Tom Frieden, former head of the CDC, as COVID-19 variants spread globally.

Updated 1 hour ago - Politics & Policy

Here come Earmarks 2.0

DeLauro at a hearing in May 2020. Photo: Alex Wong/Getty Images

The House Appropriations Committee is preparing to restore a limited version of earmarks, which give lawmakers power to direct spending to their districts to pay for special projects.

Why it matters: A series of scandals involving members in both parties prompted a moratorium on earmarks in 2011. But Democrats argue it's worth the risk to bring them back because earmarks would increase their leverage to pass critical legislation with a narrow majority, especially infrastructure and spending bills.