“Luna”cy: Crypto Crash
Despite last Friday’s big payday rally, the S&P 500 dropped for a sixth straight week. This had not happened since 2011. Last week’s down move of -2.4% extended this year’s drop in the S&P500 to -15%. Treasury bonds rallied big last week sending the 10-year yield down 20 bp to 2.93%. Calming bond yields are needed to begin calming equity markets. Investor sentiment has turned extremely bearish in the wake of the steep losses of the past six weeks. However, this position of “fear” suggests that it will soon be time to look for value in the markets. However, recall that 2022 was not forecast to be a “buy the dip”, quick fix year.
Technology stocks weighed on the large-cap indexes and the Nasdaq, despite a notable drop-in Fed interest rate-hike expectations. Growth-sensitive commodities like copper and lumber dumped amid fears of a damaging Chinese slowdown and a long war in Ukraine.
A few highlights from last week include:
- The Consumer Price Index (CPI) rose by more-than-expected in April, while the Producer Price Index (PPI) was in line with the consensus estimate, but price pressures slightly eased compared to the previous months. Real-time inflation data series look to be peaking.
- The Dollar Index (DXY) rose to a 20 year high as the major European currencies suffered move lower.
- Cryptocurrencies dropped sharply with bitcoin falling below $26,000 for the first time since late-2020. Some “stablecoins”, led by Luna on the Terra blockchain, fell by 99%.
Reversing recent course, energy prices finished flat last week amid the release of international fuel stockpiles. Metal prices for gold, silver, and copper continued to lose ground for the third consecutive week with silver off over 10% for the week. All three metals are lower for 2022. Additionally, industrial metals like copper are declining due to the lack of economic activity in China and the slowing demand in the West. This should lead to inflation expectations heading lower. For now, the Fed still has incentive to tighten monetary policy as the lagged components of the inflation index such as the shelter costs continue rising.
Hidden good news last week is that bond volatility, which led this downturn since late 4th quarter 2021, looks to be peaking. Recall that this “collateral” needs to stabilize before leverage players who borrowed to buy stocks on margin are no longer forced to sell at any price.
Weekly Stock Podcast: Nowhere to run, Nowhere to “Hide”
https://www.youtube.com/watch?v=M4FauLe5R8Q
News or Noise: Federal Reserve Balance sheet runoff
https://www.youtube.com/watch?v=cS4PKH1k2Sg&list=PLxj0FBH5Bt8vxmPI12L9xWcpoVMX7jqvZ&index=21
Interesting readings:
| WEEK ENDING 5/13/2022 (CUMULATIVE TOTAL RETURNS) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
