S&P 500 and Coronavirus Google Trends Mirroring Each Other But Bitcoin Least Correlated
- S&P 500 is “nearly completely tied to coronavirus fear” while Bitcoin the least correlated asset with gold the best hedge
- Ray Dalio meanwhile advises to “imagine the worst-case scenario and protect yourself against it”
The fear over the economic impact of coronavirus has the market in a spiral, even Federal Reserve's emergency 50 basis point rate cut couldn’t prop up the market. Bitcoin has also been acting as a risk-on asset this past week, following the stock market’s lead.
However, the Google Trends for “coronavirus” and “SPX” S&P 500 are almost “mirror images” of each other unlike coronavirus and “bitcoin”.
Analyst Timothy Peterson notes that the S&P 500 is “nearly completely tied to coronavirus fear,” representing a correlation of -0.9.
$SPX and Google Trends for "coronavirus" are almost mirror images of each other! $SPX is nearly completely tied to #coronavirus fear. r = -0.9 !!! #bitcoin is least correlated (-> $BTC doesn't care). $Gold has been the best hedge: +0.6 correlation. pic.twitter.com/pe104M0db4
— Timothy Peterson (@nsquaredcrypto) March 4, 2020
Bitcoin, on the other hand, is the least correlated asset to coronavirus. The world’s leading digital currency doesn’t really care about the deadly covid-19 virus. Gold meanwhile, has been the best hedge during this turmoil, with a positive 0.6 correlation.
“Imagine the worst-case scenario”
Meanwhile, Ray Dalio, the founder of Bridgewater Associates, who finds bitcoin to be purely speculative asset while advising people to find a stronghold asset as central banks around the world continue to devalue their currencies and print money is now asking investors to,
“imagine the worst-case scenario and protect yourself against it.”
In his latest write-up where he shares his thoughts about coronavirus, he said the virus will “most likely lead to an uncontained global health crisis that could have high human and economic costs.” Reactions to the virus are expected to cause a “big short-term economic decline” however, it will be followed by a rebound that won’t leave a “big sustained economic impact,” as history has shown.
When it comes to market impact, revenues will certainly be cut but reverse in business activity and the virus will lead to a rebound in revenue and V- or U-shaped financials for most companies. Dalio said,
“During the drop, the market impact on leveraged companies in the most severely affected economies will probably be significant.”
Meanwhile, interest rate cuts and increased liquidity by central banks “won’t lead to any material pickup in buying and activity from people.”
Dalio doesn't expect more stimulation coming from rate cuts because,
“most of the rate cuts have already happened via the declines in bond and note yields which is what equities and most other assets are priced off of.”
Instead of blanket rate cuts and broad increases in liquidity, Dalio says containing the economic damage requires,
“coordinated monetary and fiscal policy targeted more at specific cases of debt/liquidity-constrained entities.”