Lexicon Financial Group Weekly Update

Monday, November 29, 2021


Looking Back

Last week started quietly enough. This was intensified by the United States of America celebrating Thanksgiving, which is one of the busiest travel days of the entire year. On top of that, many make an extra-long weekend out of the holiday, and this year was highly anticipated since last year’s celebrations were significantly dampened by COVID-19. Markets tend to be quieter as traders and investors alike spend time with family.

So much for a quiet week -- on November 26, the World Health Organisation announced the disturbing discovery of a new COVID variant in South Africa, which it named Omicron. It’s unclear where the variant actually arose, but it was first detected by South African scientists while they were doing genomic sequencing in the country’s most populated province, Gauteng. It has also been spotted in travelers in other parts of Africa and Asia. This has led to governments in Europe and North America instituting a travel ban on people from the affected region as well as those who have travelled there in the last 14 days.

Information is still limited, but it will take some time for scientists to determine how this mutated version will react to vaccines. On a positive note, there is no early indication that this new variant is any more lethal than other strains. Despite that, this has rattled global equity markets and, at mid-day, all major equity indices were trending down by approximately 2.5%. (1) Interestingly, oil was also down sharply as news of the variant emerged.

As we’ve seen in the past, the market reacts strongly to news – positive or negative. This once again highlights the need to have diversification in a portfolio and a long-term approach to help smooth out the emotional rollercoaster of negative days in the markets.

 

Looking Back Further

News, data, and investor sentiment all have an impact on the market, causing it to go up and down. In this way, market prices reflect the risk appetite for investors as a whole. We looked back over the last three years to see just how much the markets had moved on a daily basis. We used S&P 500 for the performance of equity markets. This includes pre-pandemic, so it captures some recent market movements as well as those from before anyone had even heard the word “COVID”.

Between November 25, 2018 and November 25, 2021, there were 756 trading days on the market. During that period of time, 437 (57.8%) of the days resulted in positive returns for investors. Of course, that means that 42.4% of the periods resulted in losses for investors. On the surface, those numbers don’t mean much, since it is the quantity of the return (positive or negative) that matters. We’ve summarized the last three years in the table below. (2)

Daily Percentage Change Number of Up Days Number of Down Days
+/- 0-1% 321 235
+/- 1-2% 92 45
+/- 2-3% 10 22
+/- 3-5% 9 12
+ 5% 5 5

 

Interestingly, most of the time (73.5%), the market moves between 0 and 1%. Furthermore, of the 756 days measured, 63 of them have market movements above 2%. That’s 8.3% or roughly one out of every 12 trading days. During this three year period, the single biggest loss (-11.98%) occurred on March 16, 2020. A short few days later, the market generated its largest one-day return over the last three years, a +9.38% on March 24, 2020!

 

Looking Beyond

Obviously we all need to keep a close on the emergence of a new COVID-19 variant. It will have an impact on public policy and public health, which ultimately does impact capital markets. As a global citizen, I certainly hope that the variant can be managed by the existing vaccines. In the meantime, stay cautious and safe.

 

Further Reading

  1. Markets & Investing – Raymond James
  2. New COVID scare sparks rate rethink in markets

 

For Listening

Further Listening

The Advantaged Investor Podcast - GOLD-ilocks and The Three Bears with Nadeem Kassam, Head of Investment Strategy, Raymond James Ltd.

 

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.

  1. Data provided by Factset showing the price return of all major indices from November 22, 2021 till November 26, 2021 as of 1.25pmET in its respective local currency.
  2. Data provided by Factset showing the price return of S&P500 for November 25, 2018 till November 25, 2021 in its respective local currency.

 

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