The resurgence in Covid cases has once again triggered Covid trades. Investors are going back to what worked last year in the markets during the outbreak and lockdown. This seems the easiest thing to do. But one can’t be sure that this is the smartest thing.

The way societies respond to this wave will be vastly different from the way they did in 2020. Economic activity loss will differ. The economic stimulus may be negligible. Societies will be forced to rely on their innate social resilience to face the economic fallout of this crisis.

The markets seem to be oversimplifying their response. Simplistic responses worked last year and have spawned a belief that investing is per se just meant to be so. But, what actually worked last year were a series of overcrowded trades. They may not repeat, and their intensity may be very soft.

Smart money may use such trades to even move out. It would be prudent not to jump into such trades as this crisis may not play out like it did last year. And, the responses of governments will be quite different. Overall, recency bias must be dealt with very cautiously now.

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