It seems like all the possible negative triggers are happening at once for our equity markets.
Triggers
High bond yields : Cost of funds are increasing at a rapid pace with the possibility of rate hike happening real soon .
High Inflation : Prices are surging and surging both at retail and wholesale level. Causing risk to both margins and demand…
High Crude prices and depreciating currency : Double whammy for our macros.
Fear of 4th wave : With most of the china undergoing severe lockdown, there is a fear of COVID striking us again and causing a disruption in demand which seems to be coming back as COVID cases here are picking up the pace …the same is being reflected now in unlock theme stocks like hotels…
How much of it is factored in ?
The beauty of markets is …it is future looking and it is very likely that most of the above mentioned factors are in the price.
What do you think ? Is it priced in or has the pain just begun ? I’m in the former camp as of now.
Mortality rate is very low now for a person who got 2 or more shots. If the mortality rate is low, restrictions probably won’t be imposed. So 4th, 5th, and 6th waves may come and go, and markets will not be impacted in my opinion.
Don’t know about gold but he is quite right about high bond yeilds. FED printed money bought all those bonds under QE and created inflation and now they are trying to reduce the money supply by trying to do quantitative tightening. Basically they would have to sell bonds so that they can suck up all extra money from economy and destroy it to reduce inflation. So FED went from bond customer to bond seller with the treasury. Basics of bond :- when supply is high bond prices drop, when bond prices drop poof higher yeilds. They have 9 trillion dollar balancesheet. These are very bad signs for sure. A crash in bond market can cause recession.
These waves are no longer a surprise. People are already prepared with their strategies. They won’t let themselves get affected by it as was the case during the first wave.
I am in no mood to face another wave. I thought that it was over now. But the cases have started to rise again. As far as it is about the market, I don’t think it will have much impact on that. People are already prepared with their plans.
