The Variant and Volatility

Image source: Gerd Altmann / Pixabay

Assessing the Threat — Can the Past Help Markets Navigate the Latest COVID Variant?

On the day after the Thanksgiving holiday in the US, news that another COVID-19 variant is emerging from South Africa roiled markets across all asset classes. In early 2020, the pandemic’s spread caused markets to fall off the side of a bearish cliff. The markets reversed and moved higher from the March 2020 lows, but there have been speed bumps along the way. Monetary and fiscal policies stimulated the economy, causing inflationary pressures to rise.

Vaccines that prevented the most severe consequences of the virus led to significant rallies, but the latest variant caused markets to plunge on November 26. Black Friday, a traditional holiday shopping day, took on new meaning in markets in last week’s final session as prices turned red.

An ugly Back Friday in Markets

• All of the leading stock market indices fell sharply on the holiday-shortened session. The VIX moved to the highest level since March 2021.
• Crude oil led the way lower in the commodity asset class with an over $10 per barrel decline.
• US 30-Year Treasury bond futures rallied in flight to quality buying on the back of virus fears.
• Cryptocurrency prices fell — Lots of losses in markets across all asset classes.

Markets fear more than the virus

• Taxes are rising to pay for the stimulus programs as Washington DC debates the Build Back Better budget.
• Another term for Fed Chairman Powell points to higher interest rates as QE tapering continues, and liftoff from a zero percent Fed Funds rate is on the horizon.
• Inflationary pressures continue. Thanksgiving dinner in 2021 was a lot more expensive than in 2020.

Each correction has led to a buying opportunity

• The initial pandemic and each variant caused selling in markets, but buying the dips has been the optimal approach since early 2020.
• Scientists and the World Health Organization are concerned that the new variant is spreading quickly.
• Shutdowns in Europe last week raised concerns.
• Time will tell if vaccines are effective against the new variant.

Expect volatility, and you will not be disappointed

• Many factors are pulling markets in opposite directions.
• The global economic and political landscapes remain uncertain as we head into the final month of 2021.
• Inflation is causing all prices to move higher as fiat currency values decline under the weight of the monetary and fiscal policies since early 2020.

Corrections in markets can be swift and brutal. Black Friday, November 26, was a thin and holiday-shortened trading day in markets. Expect lots of volatility in markets as they have risen to levels where it was not a question of if a correction would occur, but when it would happen. Volatility can be a nightmare for investors, but it creates a paradise of opportunities for nimble traders with their fingers on the pulse of markets.  

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!

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Equities News Contributor: Tradier Inc

Source: Equities News