There is no Friday feeling in the markets today.
And the market is in trouble as we all hear of yet another variant of Covid-19, resulting in England placing South Africa on the red list.
What’s up with all this?
There is no doubt that the New Covid Variant has Rattled Markets
Markets today are a little different because yesterday was Thanksgiving in the United States.
As a result, the country seems to be sleeping off a surplus of candied yams.
There are fewer people in the market as a result. With fewer people in the market, moves tend to be more exaggerated.
As such, we have seen sharp selloffs on the markets this morning, particularly on equity markets and oil prices.
What is the reason for this? It’s very clear what has happened just by looking at the list of fallers. It is the new strains of Covid that seem particularly virulent that have kept everyone on a worry note.
The stock of International Airlines Group (IAG) — owner of British Airways — fell 16% at one point, while oil companies suffered losses as well, as did oil prices.
In other words, this is a “what if we have to lock down again?” fear mode.
As the travel sector was hoping they might be able to resume some sort of normality in 2022, it is not surprising they have been hit so hard.
In light of the fact that a number of countries were tightening their belts already before this variant made the headlines, it’s worth considering what additional lockdowns or disruptions will mean for markets in the future.
Right now, markets are affected by many variables. Inflation and interest rates have been the main ones in the last few months.
Inflation fears have caused investors to worry that central banks will raise interest rates faster than they had planned.
Investors have, however, assumed that the economy will continue to grow despite the boom in the stock market.
This is understandable. Jobs have been plentiful and demand has been high.
In spite of the less-than-ideal financial situation due to excessive debt, central banks may still feel compelled to raise rates sharply enough to tip everything over.
Do you know what your portfolio would look like if we had repeated lockdowns?
The threat of another shutdown may be very near. If it eventually happens, what will occur?
A further lockdown would delay the possibility of returning to “normal” and that will hinder “reopening” trade.
As a result, stocks like travel stocks and all those other things will get sold off, but those things are cyclical and are reliant on the economy getting back on its feet.
Apart from that, the market reaction mainly revolves around what all this means for rates and inflation.
A number of lockdowns could, on the one hand, prevent central banks from raising interest rates.
Moreover, further lockdowns could further upset an already-disrupted market, putting upward pressure on inflation.
The market reaction illustrates this pretty clearly once again.
Despite its recent decline, gold has rebounded, whereas the Nasdaq has suffered fewer losses than other stock markets.
As far as investments are concerned, what should you do?
It is not sure if there will be another major lockdown. However, let’s say it happens – it sounds possible, but eventually, it will be over again. By then, these stocks will likely recover at that point.
If you haven’t done your homework and if they aren’t on your watchlist, there is no suggestion that you buy anything specific. However, it could be a good time for you to dive into the “value” trade if you haven’t yet.
Oil dips would be a good investment. Oil producers have already indicated a lack of willingness to invest in exploration; oil price drops and further lockdowns will not alter that situation.
In either case, higher prices are expected from the medium-to-long-term. And there are two possibilities: either this is a scare, and everything rallies or the situation worsens, and they start to rise again.
Also, this is an excellent reminder of why it’s important to stockpile some excess cash and prepare a watchlist ahead of time.
This will allow you to be ready and calm to purchase investments you like if they are on sale.