It wasn’t all bad news from an investment perspective; safe havens like government bonds performed better in the flight to safety. It’s not just the virus developments that are causing stock markets to be nervous in the short term – we are also in a backdrop of inflation picking up, central banks tapering their Quantitative Easing programmes and interest rates moving higher.
At the moment, things are evolving quickly, fresh information is being analysed and we are still in the early days with our knowledge of the Omicron variant. Early indications suggest that this variant has greater transmission and it is unknown what it means for vaccine efficacy as well as other treatments. This has prompted officials from the World Health Organization (WHO) to call an emergency meeting.
A raft of new restrictions have already been introduced globally; from travel bans from certain countries to the reintroduction to masks on public transport in the UK. As we have seen over the last 18 months, greater restrictions have an impact in the short term on economic growth and when they are being rolled out we may see stock market falls.
Any impact on stock markets is likely to be in the very short term; we saw this previously in February and March last year when there was a very quick sharp drawdown. This is because the reaction from governments and central banks (if needed) will also be quick. The large pharmaceutical companies are also already looking at tweaking vaccines to make it better at tackling the new variant. Moderna have already said that a brand new vaccine for the Omicron variant could be ready by early 2022. There are also a number of differences now to early 2020; vaccine progress, the Covid-19 pill is now being rolled out as a treatment, we are all a lot more used to living with restrictions – in early 2020 this was a big shock and change for both individuals and companies.
Please be assured we are closely monitoring the situation and the impact this is having on the markets and will keep you as up to date as we can.
The Luna Approach
We are invested in diversified multi-asset portfolios. Luna client investments are not just invested in equity markets, each portfolio is likely to have exposure to cash, bonds and alternatives. As well as that, we are investing with experienced individuals whose job it is to understand events and respond accordingly – which is important during volatile periods like we are currently witnessing.
Stock markets have a tendency to react quickly on the downside during events like this and it is uncomfortable. What is going on at the moment is short term volatility, but we are long term investors. Financial objectives are not going to be missed because of what happens in the next few weeks but 5 to 30 years into the future. We should focus on this time period to meet long term goals and (try to) ignore the short term market noise. It is important not to panic in periods of extreme volatility and disinvest during periods like this because we could be doing so at the worst possible time.
What have Luna been doing?
For portfolios with higher levels of cash, we put more cash to work on Friday to take advantage of lower market levels. We bought some structured product exposure on Friday and are participating in a new structured product launch today. Structured products tend to fall more in risk-off periods because as well as stock markets falling, volatility spikes – we therefore like to take advantage of opportunities like this.