New corona reports are hitting the prices of stocks and cryptocurrencies hard. How the current situation should be classified from a market perspective and why a new lockdown could lead to a fireworks display of Bitcoin, Dax and Co.
So far, the worsening corona situation had left the markets cold. On the other hand, reports about a new Covid variant, which was first discovered in South Africa, are fueling new fears among market participants. There is growing concern about even greater restrictions and economic losses. For the first time in many weeks, the markets are reacting clearly: Practically all asset classes are falling significantly on a daily basis (as of 2:30 p.m., November 26, 2021):
- Bitcoin: – 7.9%
- DAX: – 3%
- Oil: – 6.6%
Only the physical precious metals and a few raw materials can defy the sell-off. Gold in particular can shine with a plus of one percentage point. In view of the almost subterranean performance of the last few months, gold can at least defend its image as a crisis metal.
The tense macro situation
The current situation is already extremely tense in many countries. The term lockdown is no longer an empty phrase, but a reality in some regions. If the new virus variant continues to pour fire into the oil, then this could be the rejection of the hoped-for year-end rally. Many companies from different industries will find it difficult to cope with another lockdown. Corrections in values on the markets would be the result.
The past has shown, however, that the real economy and the financial sector can move far apart. There are good reasons that after an initial correction in the market, as we are now experiencing, there will be a massive countermovement. Due to the worsening corona situation, the year-end rally could be even more violent.
These 3 reasons speak for a massive countermovement in cryptocurrencies and stocks
Should winter, in combination with a tougher lockdown, lead to a reduction in consumption and a reduction in the speed of circulation of money, then, as in spring 2020 and 2021, several reasons would come together that speak for rapidly rising prices.
1) Inflation risk decreases
If the economy cools down due to a lockdown and the speed of money circulation falls as a result, this can lead to a reduction in the current high inflation. If inflation decreases again, the likelihood that the central banks will adopt a more restrictive monetary policy also decreases. Interest rate hikes and other anti-inflationary measures by the ECB and the Fed are therefore becoming increasingly unlikely. That means: more central bank money for the markets, ergo rising prices.
2) Less consumption, more speculation
As already experienced in previous lockdown weddings, further restrictions can lead to a consumption cut, which fuels speculation. By not consuming, many private investors have more funds available that they can use on the stock market.
3) Aid packages provide a cash injection
If the pandemic situation worsens, the states will also make further funds available to the economy. From one-off payments to industry-specific help. With the support of the central banks, new debt can also help to increase the money supply and ultimately stimulate the markets. One can assume that governments and central banks will do everything in their power to avoid a collapse of the markets.
As bad as the pandemic is for the real economy – not to mention the social aspects – the past has shown that the financial markets often react contrary to it. Experience has shown that the resulting flood of money would primarily favor prices for stocks, real estate and crypto currencies. Private investors in particular could cause increased volatility in corona stocks, tech stocks, memestocks and memecoins. During lockdown weddings, record levels were reached in terms of trading volumes and new registrations with neo-brokers such as Robinhood and Trade Republic. The current setback could therefore offer a good opportunity to buy more.
This article only reflects the author’s personal opinion. They are not recommendations to buy or sell.