In today’s post, we’re going to talk about the investment and economic implications caused by the resurgence of Covid-19 due to the delta variant. Supply and logistics changed dramatically last year when parts of the world shut down. Delivery times slowed down and costs increased because of lack of supply and disrupted logistics.
We started to see a recovery. Supply issues started to resolve themselves. Supply chain constraints started to get better. Costs for items (due to chip shortages and increases in energy prices) started to level out.
So what’s going to happen if we have a resurgence of Covid and things shut down, or slow down, again?
The Federal Reserve
Like everything, only time will tell. The FED gave a little glimpse into what their plans were for interest rates and quantitative easing at the last meeting. They state that if the economy continues to improve as it has been, they might reduce their balance sheet and consider increasing interest rates by the end of 2023.
If the delta variant causes enough of a disruption, that could push back their timeline for ending/implementing such a plan. In either case, they’ve stated that they will continue with easy monetary policy for the foreseeable future, even if inflation starts to run hot.
If the risks around Covid-19 continue to present themselves, we’ll continue to see moves in important items, including the US Dollar, Gold, Treasuries, Yields, and Oil.
In risk-on environments, the USD, gold, and Treasuries typically increase in value. Yields usually will go down as well. The only X-factor when it comes to economics and commodities is oil. The change in the price of oil is very different this time because of travel restrictions and stay-at-home orders.
Demand for oil went straight down, so oil prices went down. Major oil producers needed to then reduce production to decrease supply so prices could recover. Then demand started to pick up and oil prices quickly came back so production needed to increase to level off prices.
With all that said, oil prices and the major producers’ production will be range-bound for a while. The delta variant is causing too much worry to peg a direction for oil in the near term.
Long-term, I think oil will recover to pre-pandemic levels for a little while, but as electric vehicles and renewable energy become more commonplace, I think demand will dry up. Then prices will go down as a result. How much the price of oil goes down, only time will tell.
If there’s a resurgence of Covid or not, there are a few opportunities I think will transcend the short-term volatility, and I’ve talked about them before. Clean energy and healthcare. I think both of these industries, in terms of runway, are in their infancy.
Healthcare has come so ridiculously far over the years, but I feel there’s so much room to run yet. Clean energy is just getting started. With countries and companies vowing to reduce carbon emissions to zero over the coming years, or decades, there will be rapid advancement in this sector.
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