Практика Shadowing: How to Trade Risk on vs. Risk Off: Macro Environments Explained - Изучайте разговорный английский с YouTube

In this video, we'll be talking about macro environments

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In this video, we'll be talking about macro environments

and how traders can take advantage of understanding how different instruments tend to behave in different macro environments to their advantage.

So without further ado, let's jump right into this thing

and talk a little bit about what happens in an economic growth or risk on environment.

How does that impact stocks,

commodities, cryptos, yields, inflation, the dollar, and more?

We'll talk about all of this as well as several other different types of market environments.

And all I ask as we get started is if you hit the thumbs up button to subscribe,

I greatly appreciate it.

Remember, this is not financial advice,

just sharing my thoughts and opinions.

And I'll leave the link to this article if you want to go through it for yourself down below in the description.

I highly recommend that you actually bookmark that page so that you can come back to it for future reference.

So let's first talk about economic growth environments.

So let's say things are chugging along,

things are going well, you've got,

you know, economic expansion, the macroeconomic story for the globe is looking pretty good.

People are employed, people are investing,

people feel like there is optimism ahead.

Essentially, the grass is greener in this particular example.

In this scenario, capital aggressively rotates out of the safe stuff and floods into growth-driven vehicles.

When people feel like there are good times ahead,

they naturally invest in things that would benefit from a good environment.

So it should make logical sense that stocks are going to typically perform well in this type of environment.

This one's pretty obvious.

A thriving economy boosts corporate earnings and risk appetite,

driving capital into equities and speculative digital assets.

We'll talk about how that also impacts positively cryptocurrencies, right?

Stocks are generally going to move,

at least at the time of recording this, they're pretty correlated.

So stocks and cryptos tend to move together in most of these scenarios.

But you can see crypto and stocks are going to typically respond positively to an economic expansion and good times.

What about commodities?

Well, commodities also see bullish spikes,

typically during an economic growth cycle.

There's a couple of reasons for this as to why this might take place.

But I'm really talking about here specifically industrial commodities.

Think copper and oil, etc. During industrial expansion,

manufacturing demand pushes prices higher for energy and raw materials.

And now I know you might be thinking,

well, does this include gold?

Well, not necessarily so much.

When we're thinking about gold,

gold falls under slightly different just to commodities,

broadly speaking, because gold kind of acts as a precious metal,

and that That is more of a risk-off sort of protection environment.

That being said, gold can also move higher during this period of time because inflation often rises during economic expansion.

So this is not a perfect one-to-one.

Good times do not mean gold necessarily has to drop and vice versa.

There's some nuance here, and that's why we're doing this video in the first place.

Yields and inflation rising, this is a strong growth response, right?

So when growth is expanding,

when things are doing well,

naturally prices actually start to get bid up.

Things go higher in price because consumers are out there spending.

More activity causes more spending.

More spending causes prices to go up.

You see the point here.

Pushing government treasury yields higher as well.

Bonds during this time also move lower because bond prices move inversely to yields.

And the demand for bonds is lower typically in a really solid growth environment

because people would rather buy stocks and cryptos during this sort of environment.

So generally speaking, during the good times,

we're looking at an environment where the dollar and bonds are sort of out of favor,

yields are moving higher, inflation is trending higher,

but not necessarily rapidly, just it's trending generally higher.

And crypto, stocks, and commodities also see a boost during this period of time.

Let's move on to our next segment here.

And again, like I said,

if you want to bookmark this specific link,

we'll leave it linked in the description down below.

We have, by the way,

tons of free resources on our website,

including free indicators, broker and prop firms.

We have course material like fundamental analysis courses.

And of course, you can also explore our premium products as well.

But make sure to bookmark our website for free access to these things as you go into your trading career.

Okay, so next one is going to be an inflation surge.

So this is a different type of environment.

So let's say that you have some sort of geopolitical conflict or like in the pandemic,

we saw a dramatic supply chain disruption,

which caused a sudden and pretty aggressive inflation surge globally.

So when inflation spikes unexpectedly,

it alters market dynamics by threatening corporate margins,

which is painful for businesses and eroding the purchasing power of consumers.

Central banks typically respond by tightening monetary policy,

creating a challenging environment for traditional investment strategies,

aka stocks don't do so hot,

cryptos don't do so hot,

and bonds don't do so hot during this type of environment.

In what sort of scenario does this do well?

Well, of course, commodities tend to act as a bit of an inflation hedge.

As inflation is taking place,

prices are rising, so too is the price of commodities, right?

So if you're thinking copper and oil and all those sorts of things.

Now, an inflation surge is a bit different than a full-blown stagflation environment where the economies of the world collapse

and you have inflation.

That's a very specific scenario.

This is talking more about you have an economy that's not in the total gutter,

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but you have a sudden spike in inflation.

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That does cause corporate earnings to come under threat.

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Stocks tend to move lower.

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The dollar moves higher because,

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again, central banks, but specifically in this case,

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the Federal Reserve, is going to look at hiking interest rates to combat that inflation or,

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at the very least, slowing down their rate-cutting process.

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This is going to cause yields,

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bond yields, to move higher as interest rates move higher.

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So that is going to be a positive factor for that side of thing.

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And of course, inflation moving higher as well.

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The bottom line on this one is that inflation surges,

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compress equity multiples and crush fixed income or bonds,

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forcing a defensive shift into tangible commodities and cash equivalent safe havens.

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What about an economic slowdown?

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Now this one's pretty painful,

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and a lot of times people are very much wanting inflation to come down.

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They say, I hate when prices are moving higher,

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and I totally understand that.

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It's very annoying when you're experiencing a round of inflation and everything costs more and more and more.

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But economic slowdown is the one scenario in which inflation comes down,

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but it's not for a fun or good reason.

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a economic slowdown, market sentiment turns risk off,

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meaning as consumer spending cools and business activity decelerates,

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capital aggressively rotates out of growth stuff and into defensive stuff.

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And why does consumer spending slow?

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Oftentimes because people lose jobs,

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they lose a ton of money in the markets,

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and it is economic pain for a lot of the consumers,

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especially the lower end consumer where economic slowdowns disproportionately hurt even more.

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Now, economic slowdowns hurt everyone in all income groups,

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but especially low income because they're sort of already not doing exceptional.

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And then an economic slowdown typically means losing jobs,

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losing the value on, you know,

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things they might own, etc. But it does impact all curves

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or all part of the wealth curve

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because even the wealthy see the asset prices on things they own or stocks that they own depreciate significantly.

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So in an economic slowdown,

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right, it's a ripple effect.

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Corporate earnings get hurt and that causes them to lay people off,

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which causes less people to be able to spend money,

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which caused corporate earnings to get hurt.

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And you can see how that is a bit of a vicious cycle.

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During economic slowdowns, you have stocks moving lower,

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commodities moving lower as less demand for raw materials,

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etc. Yields also move lower as central banks rush to lower interest rates to try to help out the situation.

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By lowering interest rates, they're trying to spur economic activity by sending people out,

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hey, go buy a house,

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go borrow money, it's cheap to do so right now,

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in an effort to try and help the economy.

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Bonds move higher during this environment because again,

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they move inversely to yields.

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Bond values go up because old bonds hold suddenly much more value as inflation falls,

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yields fall, and so existing bonds that have already traded become more valuable.

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Inflation also obviously comes down in this scenario because people are just not spending money.

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They pull back on spending,

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etc. During this type of environment,

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the dollar also tends to see a bit of a risk-off flow simply because it is,

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at the time of recording,

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that is the global reserve currency.

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People flock the dollar in the currency world as a bit of a safe haven.

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And crypto also sees selling because it falls under that category of risk on assets,

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which typically do not do well in economic slowdowns.

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The bottom line, an economic slowdown flips the script,

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punishing equities, cryptos, and commodities while rewarding safe havens.

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So generally speaking, a broader way of saying this is a risk-off environment typically causes exactly what we just said.

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Stocks and cryptos get hit while people flock to the dollar and gold,

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which is something that we should talk about.

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Sometimes people get confused by how the dollar and gold can sometimes move in the same direction.

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And during a true risk-off environment,

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oftentimes you can see gold and the dollar move up together.

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So that is something that can take place at times.

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And this is making sense because people rush to bonds.

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They also rush to the dollar and they rush to gold.

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All three are sort of the main safe havens that people tend to think about.

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And the big thing here,

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right here, it does a nice job of defining this here.

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The team did a good job with this one.

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The dollar gets strong because it's relatively attractive to other currencies,

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but also because as the ultimate liquid safe haven asset,

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people hoard cash in these sorts of environments,

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waiting for lower prices or wanting to remain liquid in case things get worse.

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A risk off environment triggers a flight to liquidity,

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crushing stocks, cryptos and cyclical commodities while fueling powerful rallies in the U.S dollar and government bonds.

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So and this is a response to U.S dollar strength.

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This is kind of another scenario.

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So again, I know I keep repeating myself,

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make sure to bookmark this page.

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The team did a really good job putting this report together.

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And I think it's a great guide for as you traverse markets to come back to and reference for future use.

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In the environment that you have US dollar strength,

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you have a mixed response from stocks.

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Doesn't necessarily mean dollar strength does not mean stocks have to come down.

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Oftentimes they do because it means a lot of times you have yields moving higher

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and yields moving higher is interest rates moving higher.

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So that can be a little painful,

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but it doesn't have to be.

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There are times where dollar dominance also is coinciding with U.S stock market strength.

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If foreign investment wants to flock into the dollar and buy U.S stocks,

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those two things can move up together.

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So that is something to think about.

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A risk-off environment triggers a flight to liquidity,

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crushing stocks, cryptos, and cyclical commodities while fueling rallies in the dollar and government bonds.

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So I've also got some videos on this that I think if you want to check out,

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make sure to scroll to the bottom of this page.

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And also make sure to join our free Telegram channel

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if you want daily updates on what is going on macro fundamentals wise.

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We have posts going out every single day discussing the current market environment and how we might trade this better.

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So like I said, check out the links in the description down below

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if you want to unlock this article for future reference.

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Just bookmark the page.

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Join us in Telegram, join us in Discord, etc. Thanks for watching.

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Trading fundamentals can be a lot of hard work,

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but we actually made a pretty cool free telegram channel where

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we are publishing constantly updates on what is going on from a macro fundamentals perspective.

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And no, it's not AI.

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It's not written by a robot.

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It's written by a real person on our team.

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His name is Alan.

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He puts together a report each day on what is going on and things like gold,

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currency pairs, commodities, indices, et cetera,

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on a global financial fundamental analysis basis.

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It's a really cool newsletter where you can basically stay on top of things by reading for like a minute per day.

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If that would be interesting to you to join the free Telegram channel,

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there is a link in the description down below on this video that you can join and get into the action there.

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We also offer special discount perks for our products as well as for funded accounts and for brokerages, et cetera.

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And we also do some giveaways as well.

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So definitely take a second to join the Telegram channel in the description down below.

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I also want to take a second to just genuinely thank you for supporting my content here.

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Make sure to subscribe and hit the thumbs up button if you have not already.

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And I do hope that more videos in the future will continue to help you on your trading journey.

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Good luck.

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Thanks for watching.

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