Kamal Lidder's weekly newsletter tells Markets are on the Edge
                      
Weekly Newsletter  
 
 
 
Markets are on the edge 
 
Hello and welcome to our weekly newsletter, where I talk about what's been 
going on in investment markets and what to look out for in the days and 
weeks ahead. 
 
In the last week there's probably only one word that can describe what's been 
going on and that is wow! A lot has happened in the last seven days in 
investment markets. I'm going to pick through the bones of that in this Kamal Lidder, LLB Hons 
newsletter. Investment Advisor 
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If you recall a week ago the market was more concerned about Jerome Powell C: 604.626.1590 
and his second term as the chair of USA Federal Reserve than they were about [email protected]  
a new wave of Covid particularly in Europe. Things have changed a lot since 
then and the biggest story which swept the feet from under bond and equity 
markets was obviously the announcement of Omicron which is the new Covid 
19 variant that has 50 mutations and more than 30 on the spike protein that 
most vaccines target. 
 
Aarinder Lidder, BA Hons 
Investment Associate 
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 C:236.999.3233 [email protected] 
The speed at which governments moved to impose new travel and domestic  
restrictions was a result of fears that Omicron could evade the body's immune  
system and existing covid vaccines. The reaction from investment markets  
was immediate with bond yields collapsing and don't forget that means that l idderwealth.com 
bond prices rallied while equity markets slumped as investors rushed to haven   
assets. If you look at the 10-year US treasury yield at that time, it fell below   
1.5% which obviously was good news for bond investors, but it remained 
above that 1.46% level. This ensured that the recent uptrend in treasury 
yields that we've seen since the summer had remained intact. 
 
That was a key technical analysis point to keep a look at and that was as of 
last Friday. The price of oil collapsed 12% back below its 200-day moving 
average which is a particularly bearish sign. Bitcoin continued its recent fall 
and at one point was 20% below its November high. Most developed world 
equity markets fell between 3 and 5% from their recent highs and in some 
cases, they were all time highs just two weeks prior. 
 
  
 
 
 
The markets were spooked and that was within the first 24 hours of the news of Omicron breaking. Investors were 
spooked mostly about the economic impact of a new potential vaccine evading Covid variant that, no matter what you 
held in your investment portfolio last week you would have taken a blow. The only real exceptions would have been 
exposure to gold and government bonds but even the former ultimately took a hit this week. 
 
Heading into the end of last week the market was in the grip of fear and based on the market's reaction you would 
have thought we were back in February 2020. It's far too early to say either way just yet, especially as the scientific 
analysis of Omicron has yet to be completed. Even if we are on the precipice of a March 2020 style event, history 
gives us a hint about what might come next. In 2020 central banks hit the panic buttons and flooded the market with 
liquidity via quantitative easing and interest rate cuts. This ultimately propelled equity markets to their recent all-time 
highs. Following the news about Omicron, money markets initially pushed back their bets on how soon and how 
quickly the USA Federal Reserve for example will raise interest rate and it was the same for other central banks. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Moving into this week equity markets attempted a rebound with bond yields moving higher along with equity markets. 
They tried to move on from Omicron but then Jerome Powell decided to go in two footed and take the markets legs 
away again. In this week's press conference Powell made his most hawkish comments on monetary policy since the 
pandemic began. He stated that it was time to retire the ‘T’ word as in transitory which was his word to describe 
inflation and that the Fed would need to act to deter persistent inflation and taper QE quicker than planned. 
 
The timing of his comments seems quite strange coming just as the market is trying to assess the potential impact of 
Omicron. The US Federal Reserve admitted that Omicron is not yet baked into its economic outlooks. We will find out 
in the coming weeks and days whether that will likely change. 
 
It means that the net result was that Omicron combined with a more hawkish pivot from the Federal Reserve sent 
equity markets into a tailspin. The S&P 500 is some 3% lower than its recent high currently sitting around 4582. The 
TSX is down around 4% to 20805. In Europe, the German DAX is down almost 6% from its high two weeks ago. The 
US dollar rallied which was bad news for commodities especially gold. Even supposed havens except for certain 
government bonds were not safe this week. 
 
Jerome Powell’s comments increase the chance that the current bout of equity market volatility might turn into 
something a bit more worrisome. At the same time that equity markets have been falling, bond prices have rallied as 
investors increase their bets that Omicron will hit economic growth. The 10-year US treasury yield is down to 1.4% 
which effectively ends the uptrend in bond yields that started in the summer. That is going to be interesting to see 
where that goes in the days and weeks ahead. 
 
 
 
Omicron and the Fed pivot has changed the backdrop, meaning that fear is the overriding emotion in investment 
markets right now. Where we go from here depends a lot on how dangerous Omicron turns out to be. If the news is 
 
good news, then expect a positive response from equity markets. If not and central banks tighten into a potential 
slowdown then things could get ugly. 
 
Right now, depending on which indicators you use, equity markets are looking oversold. Historically it suggests we are 
due a bit of a rebound but we're going to wait to see what happens. Markets are on the edge with several equity, 
bond indices and sector-based equity indices sitting at key support levels. This is technical analysis that I'm writing 
about. It is a bit like the pandemic itself. Will Omicron spark a similar move we saw in February 2020, much depends 
on what science tells us about the new variant in the coming days and weeks. If the news is bad, then things could 
obviously come crashing down. If things do come crashing down, then the Fed and other central banks will likely need 
to pivot once again and ironically investors would probably be quite happy with that based upon history. If its good 
news surrounding Omicron, then it could be the catalyst for the seasonal Santa rally unless of course the Fed decides 
to derail things. 
 
 
 
 
Have a great weekend! 
 
 
Kamal and Indy Lidder 
 
 
To find our more information about Lidder Wealth Advisory Group click on: www.lidderwealth.com 
 
 
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