Global financial markets are on the brink of spiraling out of control. The still lingering pandemic has significantly weakened the fabric of the overall global economy. Supply chains and logistics have been severely disrupted to the point of no return. Combined with monetary expansion, these conditions are causing runaway US dollar inflation at a rate of around 7.5% year over year.
Just when you thought the dire situation couldn’t possibly get any worse, a major geopolitical event intervened with an open military escalation between Russia and Ukraine. It also comes during a time when China is eager to bring “home” the country of Taiwan. Talk of World War III is becoming the norm.
Meanwhile, mounting inflation pressure is forcing the US Federal Reserve to tighten its monetary policy and hike rates, bringing further volatility to already strained markets. Furthermore, an energy crisis is rapidly unfolding, with the prices of strategically important commodities like natural gas and oil skyrocketing to the highest levels in years.
Against such a high-risk backdrop, what to invest in has become much less clear. Until risk appetite returns, stocks, indices, ETFs, and possibly crypto could struggle. PrimeXBT analysts have broken down which macro assets could provide the best performance, along with what to expect from the rest of finance.
“Historical speaking times of crisis were often also chances to invest into risk on assets at a discount and achieve substantial returns in the long run. So this might actually be a good opportunity to buy some stocks and Cryptos if you are able to mentally deal with potentially high volatility still being around for a couple of weeks,”said Dirk Hartig, PrimeXBT Trading Expert
Currencies, Crypto, And Stocks
The best asset to be in right now is the US dollar — the global reserve currency. The most evident barometer measuring the strength of the US dollar is the DXY Dollar Currency Index, which is a basket of other national reserve currencies trading against the greenback. The DXY index returned to the 99 level for the first time since after Black Thursday, when the pandemic first struck. The war across Europe has weakened the euro and the pound, and the risk of conflict surrounding the situation brewing in Taiwan is weakening the yuan. All of these factors have made the dollar its most dominant in over a year.
The US stock market and other risky assets tend to suffer when the dollar is this strong. This trend cannot sustain, however. From Warren Buffet to his shoeshine boy, everyone invests in these markets. If the stock market collapses, the entire economy falls with it. Businesses everywhere would go bankrupt, and a major consumer credit crisis would occur. Before this ever happens, the Federal Reserve will once again react with swift monetary policy to stimulate the economy.
Trying to find undervalued stocks currently is a roll of the dice for professionals, so newcomers are advised to have patience and proceed with caution. The most risk-averse and potentially profitable strategy would be to wait it out. Weather the storm and look for signs a recovery has begun, then invest in major indices such as the S&P 500, NDX, FTSE, and EuroStoxx50.
According to PrimeXBT’s detailed analysis, the price charts for Bitcoin (BTCUSD), the S&P 500, the NASDAQ, and EuroStoxx50 are virtually identical (pictured above).
In recent years, the cryptocurrency market has matured, with institutional investors now providing the much-needed liquidity global markets demand. Strict regulation in China has further caused crypto and US stocks to trade in tandem. Because Bitcoin and the cryptocurrency market have demonstrated a strong correlation to the stock market over the last two years, the end of the correction would be an ideal time to take a position in assets like Bitcoin and Ethereum.
Precious Metals And Commodities
Outside of stocks and crypto, important strategic commodities that play a vital role globally and economically like natural gas and oil have been climbing. It is tempting to buy given the current spotlight on such assets, but much like stocks and crypto corrected and are due for a recovery, these so-called hot commodities currently might be due for a pullback, making them riskier than in past months.
When such risk encompasses global financial markets, few assets perform as well as the original safe-haven asset gold. Gold has strengthened during the recent military conflict going on across Europe. Silver also has the potential to shine due to its use in green technologies — technology that will become increasingly crucial globally if oil prices continue to rise.