Panic Selling

The stocks and cryptocurrencies markets are dangerously surfing on a wave of sell-offs. While there are signals that the coronavirus pandemic will become endemic, the market is heading into the unknown. Five waves of infections, hyperinflation, shortages, supply chain disruption had not much effect on the stock market. But, dark clouds are gathering on the horizon. Is this the final countdown towards the end of the current cycle?  

The pandemic left untainted for almost two years the overall bullish sentiment in the stock market. But the time to pay the dues has arrived. The question is not whether the dues should be paid, but rather is this the right timing to start paying them.

Central banks have unfolded their roadmaps to increase interest rates, in an attempt to control hyperinflation and consumption overheating. If the inflation-control strategy fails, investors will face a double-edged dilemma. On the one hand, they will need to cash in their investment portfolio, due to the foreseeable market crisis. On the other hand, cash will not be an option due to non-transitory inflation.  It could mark the end of the investing frenzy and a return to basics. Who will be the winners?

Employers will be the big winners, as many inactive individuals will be forced by circumstances back into the workforce.

Panic implies that there is no rational thought taking place. That we are frozen and incapable of adjusting. Powerless to logic, and subject to seemingly unthinkable behaviour. Anthony Scaramucci, American investor

Market overview

Tech stocks had a bad week. NASDAQ, the leading technology index, lost 2.7% on Friday and marked the worst week since the pandemic outbreak. Since reaching its peak in November 2021, NASDAQ lost almost 2,500 points. The overall market sentiment is gloomy. US 10 years Treasuries yields plunged significantly to 1.76%, thereby signalling that the Fed’s goal to increase interest rate may face serious challenges.

If the Fed's tapering strategy fails, investors could be in a difficult position with high inflation and bearish markets. While being less dangerous than the previous coronavirus variants, Omicron disrupted the economy. US data showed that more than 8.5 million workers were sick over the past week.

Focus:

Zoom

The video conferencing company is continuing its sharp decline triggered in September 2021. Over the past five months, Zoom’s share price lost more than 50% of its value.

Zoom was one of the tech firms that thrived during the initial stage of the pandemic because it was one of the only few tools allowing remote work communication. With more competitors coming into the market and fewer growth opportunities on the horizon, Zoom has nothing but to contemplate its own decline. This is a cautionary tale for all tech companies that need to reinvent themselves periodically to stay in the game.

Focus:

Netflix

Netflix shares lost 22% in the last trading session triggering turbulence amongst tech stocks.  While financially the company is doing well, with a steady subscription base and growing revenue, the future seems to be greyish.

A plethora of competitors are jumping into the streaming sector, eating Netflix's market share rapidly and hindering its growth opportunities. Market analysts see a streaming war on the horizon, with Disney, CNBC and Hulu entering the game.

Cryptocurrencies:

Bitcoin

Russia’s central bank proposed to ban all investments and mining activities in cryptocurrency on its territory. The bearish mood in tech values added significant negative pressure on the crypto market. Bitcoin prices plunged below USD 36,000, the lowest level recorded since July 2021.

The increasing correlation between stock prices and Bitcoin raises serious questions about Bitcoin's utility as a diversification asset. Moreover, the Fed's newly announced policy for this year should reduce investors’ appetite for crypto.

The future perspectives for Bitcoin are grim, the leading cryptocurrency moving away from its initial goals to democratise the financial services industry.

Commodities:

Wheat

The official inflation figures in Western countries are relatively low, compared to the real price inflation encountered in all walks of life. The underlying reason is that for the key consumption productions (i.e bread) the prices had a limited rally.

Nevertheless, the current US  - Russia tension and the heated situation around the Black Sea may lead to an explosion in wheat prices. Ukraine and Russia are amongst the world’s main wheat producers supplying a significant chunk of the global bread wheat demand. Moreover, the abnormal weather patterns recorded in 2021 are reducing the perspective of a good harvest season in 2022.

Suppose the military tensions at the Eastern Ukraine border escalate into war and new sanctions are inflicted on the Russian Federation. In that case, wheat prices will skyrocket, and inflation will be on the rise.

Market outlook

The Dow Jones Index continued declining, dipping below the 34,500 support level. The recent tech stock market contraction marks the beginning of a structural market decline and could trigger a massive sell-off across all equity markets.

Bitcoin ended the week below USD 36,000, undergoing a significant dip. The correction should continue, and Bitcoin could test the USD 30,000 level over the next month.

The Gold ounce ended the week into positive territory, closing near USD 1,835. The foreseeable market contraction and the inflationary context are good arguments for a rally in gold prices.