Kamal Lidder weekly newletter tells Markets are on the Edge

1. 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 newsletter. If you recall a week ago the market was more concerned about Jerome Powell and his second term as the chair of USA Federal Reserve than they were about 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. Kamal Lidder, LLB Hons Investment Advisor T: 604.643.7707 C: 604.626.1590 klidder@cgf.com Aarinder Lidder, BA Hons Investment Associate T: 604.643.7612 C:236.999.3233 alidder@cgf.com 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 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. lidderwealth.com

2. 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

3. 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 Canaccord Genuity is a member of the Canadian Investor Protection Fund. The comments and opinions expressed in this newsletter are solely the work of Lidder Wealth, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, it is for general information only, does not constitute legal or tax advice, and the author, Lidder Wealth, does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author, Lidder Wealth, or Canaccord Genuity Corp. assume any liability. Canaccord Genuity Wealth Management is a division of Canaccord Genuity Corp., Member - Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.