February 15, 2022, 1:42 pm EST
The Paradox of War, Economy, and Pandemic
War or no war? Inflation or growth? Pandemic or back to normal? These are the paradoxes that confused everyone in the financial markets. Let’s start to analyze them with the easy one first.
First, today’s rally is based on the relief of tensions about Russia’s potential invasion of Ukraine. Although we do not know what really happened behind the scene of the negotiation between Russia, Ukraine, the US, NATO, and various European countries, we can still say that the war is under control by certain decisions among nations when comparing to economy and pandemic. It means that the impact on the stock market could be temporary and limited from potential wars. Therefore, we would like to set our expectation of the influential power of wars to the financial market into a limited scope.
Second, the US economic status is our main focus which includes, inflation (CPI, PPI), fed rates, housing, job markets, etc because they cannot be easily changed within weeks or months. Thus, this factor is relatively stable and predictable for investment decisions. Based on our analysis (bull-bear transition series 1-3), we believe that the US stock market already transferred from bull to bear since January 2022. We stick with this viewpoint unless the stock market can make new highs again which is very unlikely in our opinion.
Lastly, improvement of COVID-19 is gradually visible for less death and fatal outcome of a pandemic comparing two years of struggle. This is bullish news for the financial markets. Risings stocks include travel, airlines, cruises, hotels, and consumer-related industries. It makes sense to pay attention to stocks based on this fact. However, we need to remember that these stocks are very vulnerable due to the resurgence of the new variants or weakening the economy.
In summary, the paradox or uncertainty of war, economy, or COVID-19 will continue to swing the market up or down through daily fluctuations. However, if we focus on the main theme which is the economy itself, other noises will be secondary for us. There are still investment opportunities in warfare or economic re-opening. We simply need to put lower weight on them.