This “The Investment under the Coronavirus Pressure” article was written by Sergey Okun – Senior Financial Analyst at I Know First, Ph.D. in Economics.

Summary:

• The emergence of the Omicron variant has significantly increased volatility in the market
• The reaction of the FED to Omicron is unclear now taking into account the inflation threat
• The annual inflation rate in the US surged to 6.2% in October 2021
• I Know First has recently updated the Coronavirus stock market forecast package to determine the most advantageous investment opportunities based on utilizing an advanced self-learning algorithm

For more than one year we have been living in a time of global pandemic threat and unprecedented economic support from governments. Each time when we think that we have an effective vaccine again the virus, and we form expectations about living in the post-pandemic time, Corona strikes again jeopardizing our achievements in fighting it and creating chaos in the global economic system. Omicron, which introduced itself in the previous week, is the new variant of Covid-19 which has a high number of mutations in the virus spike protein. It is unclear now how dangerous the new variant is, but governments have begun to implement security measures to prevent the spread of Omicron to their territories.

Today we have a high level of uncertainty in financial markets and we do not have enough information about the new variant to adjust our expectations of the future. But Omicron is not a “Black Swan” for us like it was when we met the Covid-19 for the first time, and what is more important is that the world economy has already adapted to the realities of the pandemic and can react quickly to a current situation. While the beginning of Covid-19 in the February of 2020 was something new for us, which we had not had before in our modern history, the Delta variant did not have such a dramatic impact on the global economy and our everyday life as the Covid-19 did the first time.  

Between the Coronavirus and Inflation Walls

Although the emergence of COVID-19 crashed financial markets in the March of 2020 and put the world economy in lockdowns, it has also introduced the mega uptrend growth which is continuous today.   

How is it possible that in the pandemic time we have higher expectations about companies’ abilities to generate profit, which determines a stock price, when companies do not work in their full capacity than before the Covid-19? The answer to this question is government support. So, to support the market, the FED significantly increased the amount of money in the economy and decreased the interest rate close to zero. Despite the fact that such monetary policy has had a positive effect on stock prices, it has also created a threat of inflation in the future if the amount of production does not grow significantly to absorb the money supply.

Today we have entered the phase when we are face to face with inflation. According to Trading Economics, the annual inflation rate in the US surged to 6.2% in October 2021, which creates a threat of high inflation expectations in the future with higher interest rates to meet these expectations, and this will increase funding costs for corporate business. The FED wanted to start decreasing the market support in April. However, the opposite position of the US Government forced the FED to delay realizing its plan for the future, and the emergence of Omicron can delay it in the distant future.     

From the example of Delta, we see that the global economy has already adapted in the pandemic time, and the emergence of a new variant can increase the volatility rate in the short term. However, the biggest difference in the Omicron case is that earlier the market could take into account the government support to overwhelmed negative impacts of the pandemic such as lockdowns or the Delta variant. But today, we are facing inflation and it is not clear if the FED can postpone tackling inflation again, and support the market so that it does not have a dramatic effect in the future. Now we need to see that the FED and the US Government have the same macroeconomic position and can create an effective plan to confront Omicron under the threat of inflation. Otherwise, policy actions will create additional levels of uncertainty that increase volatility and will undermine faith in the ability of the FED to effectively manage the pandemic macroeconomic situation.

How to React in the Period of Uncertainty

A period of high volatility and sell-off creates great opportunities in the market. However, at the same time, an investor has to stay calm to correctly analyze a current market situation in an environment of ambiguous information, and make correct investment decisions. One of the ways is to delegate the task of determining profitable investment opportunities to AI. I Know First has developed the Coronavirus stock market forecast package to determine the most advantageous investment opportunities. The main focus of the package is to cover the assets that may be affected by the coronavirus with the biggest financial exposures and it includes assets such as gold and relevant commodities, biotech companies’ stocks, pharmaceutical companies’ stocks, semiconductors, and technological sectors stocks and more. Currently, we have updated the Corona package (click here for the list) based on the current market situation.

This week, we saw the Coronavirus Stock Market Forecast package delivering returns up to 4.2% to our clients in just seven days. Despite the price fluctuation, our algorithm has successfully predicted 8 out of 10 movements. The package average stood at 4.2% while the S&P 500 had a -2.48% return in the same period. In other words, our AI could recognize a profitable investment opportunity and provide solid results in the period of volatility boom.

In addition, during the period of macroeconomic uncertainty, the actuality of the safe-haven asset increases. In our article, we discuss the opportunities and risks of the Cryptocurrency market and switching the role of the safe-haven asset from Gold to Cryptocurrency in the pandemic time. Recently, due to high demand, we have expanded our cryptocurrencies coverage and provided special access for our clients to the market. You can access the Coronavirus Stock Market package and Cryptocurrencies packages here.

Conclusion

The emergence of the Omicron variant shows that the current macroeconomic situation stays fragile. Countries prefer to close borders and implement security measures to prevent the spreading of Omicron to their territories. While we do not get enough information about the new variant to adjust expectations, we will see a high level of volatility in the financial market. Moreover, Omicron significantly increased the complexity of the inflation task for FED, which could have a dramatic macroeconomic effect in the long-term period. Despite the uncertainty creating a high level of risk, it also creates great investment opportunities in the long term.   

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