The attribution I have seen for the bull market is that investors are bullish on a return to normal via widespread vaccine distribution. If that is the case it follows that the current market is highly dependent on investor sentiment, and that a rapid, negative change in the short-to-moderate term outlook (due to the rise in a new, more-proboematic variant) will decrease the market.
However, the above line of logic is easy to follow and any investor who made or lost a lot of money last March will be on the lookout for the same thing to happen. So, the chance of a downturn could end up being overpriced by the market as people try to capitalize on a crash. Upside bets might end up being really cheap; the scenario in my head is something like this: we have rapid spread of the new strain and consequently a lot of panic spreads too, but then it becomes apparent that the strain is not as harmful, or some good vaccine related news comes out (I’m no expert on what the good news could look like, but I’m sure there is something), and the market recovers or rallies. That is why I thought a bet on vol could be good, if you buy a straddle (or strangle) you win on either a big upside or downside move.
Interesting. The market has not increased much since the announcement of the Moderna and Pfizer vaccines, so I’d have a hard time causally connecting the market to the vaccine announcement.
My feeling was that the original sell-off in February and early March was due to the fact that we were witnessing and unprecedented-in-our-lifetimes event, anything could happen. A more contagious form of the same virus will only trigger mass selloff if and only if investors believe that other investors believe that the news of the new strain is bad enough to trigger a panic selloff.
There are too many conflicting things going on for me to make confident claims about timelines and market moves, but I really do doubt the story that the market is up ~13% relative to January of this year simple because investors anticipate a quick return to normal.
The attribution I have seen for the bull market is that investors are bullish on a return to normal via widespread vaccine distribution. If that is the case it follows that the current market is highly dependent on investor sentiment, and that a rapid, negative change in the short-to-moderate term outlook (due to the rise in a new, more-proboematic variant) will decrease the market.
However, the above line of logic is easy to follow and any investor who made or lost a lot of money last March will be on the lookout for the same thing to happen. So, the chance of a downturn could end up being overpriced by the market as people try to capitalize on a crash. Upside bets might end up being really cheap; the scenario in my head is something like this: we have rapid spread of the new strain and consequently a lot of panic spreads too, but then it becomes apparent that the strain is not as harmful, or some good vaccine related news comes out (I’m no expert on what the good news could look like, but I’m sure there is something), and the market recovers or rallies. That is why I thought a bet on vol could be good, if you buy a straddle (or strangle) you win on either a big upside or downside move.
Interesting. The market has not increased much since the announcement of the Moderna and Pfizer vaccines, so I’d have a hard time causally connecting the market to the vaccine announcement.
My feeling was that the original sell-off in February and early March was due to the fact that we were witnessing and unprecedented-in-our-lifetimes event, anything could happen. A more contagious form of the same virus will only trigger mass selloff if and only if investors believe that other investors believe that the news of the new strain is bad enough to trigger a panic selloff.
There are too many conflicting things going on for me to make confident claims about timelines and market moves, but I really do doubt the story that the market is up ~13% relative to January of this year simple because investors anticipate a quick return to normal.