Markets Report: Week of January 24, 2022
Dire predictions for the stock market abound, NFTs are controversial among gamers, and crypto might not be as “alternative” of an investment as we thought.
Updated Jan 25, 2022
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Some experts are concerned about the stock market, issuing warnings of a bubble, or rather multiple bubbles, about to burst. Game developers don’t seem to have a very rosy outlook on the NFT craze. And crypto is taking a hit across the board, as market observers begin to question its value as a portfolio diversification tool. Check out the details and get updates on more of your favorite asset classes below.
Stocks & Bonds
Stocks & Bonds
Well, it’s not looking great. With the S&P down more than 8% from its January peak as of last Friday (and the Nasdaq down almost 13%), some experts are predicting a huge crash to come, calling the current market a “superbubble”. Many are quick to discount these dire predictions, citing historically low interest rates—even after expected Fed hikes—as being generally good for stocks, as well as pointing to the correction already seen in many pandemic stock prices. However, it is worth noting that the price-to-earnings ratio on stocks in the S&P show that the market is more highly valued than it was just prior to the crash of 1929. Food for thought, indeed.
Along similar lines, the current bond market is causing some investors to quietly (or not so quietly) begin to panic. Over the past five months, 10 year Treasury bond yields went from 1.17% all the way up to over 1.7%; the price of bonds has fallen sharply accordingly. Time will tell as to whether these yield rates will remain elevated and soften the short term blow of lower prices, but it’s worth keeping a close eye on the upcoming Fed policy meeting. Starting today and scheduled to wrap up tomorrow, the results of the meeting may give investors a better idea of exactly how many rate hikes we can expect this year and of what sizes, and a more detailed road map may help temper the general volatility of the moment.
Amidst all the stock market doom and gloom, there IS a bright spot: Kohl’s. The department store chain is having an absolutely fantastic week, fielding multiple offers for a buyout, and seeing its stock price jump up over 30% on Monday. It’s unclear as of yet who will win the bidding war, but in the meantime, early investors in the company are making some big profits.
Gone are the days when anyone could just post an image of a CryptoPunk or Bored Ape as their Twitter profile picture, regardless of whether they owned the real thing or not. Now, Twitter is integrating NFTs in a way that allows for the verification of these highly valuable bits of blockchain—if someone’s got a hexagonal profile picture, it's the real deal. However, observers are already pointing out the various ways in which these could still be faked, and there’s a limited list of crypto wallets allowed for connection, meaning the system Twitter’s put into place has a long way to go before NFT purists will be happy with the product.
In a recent survey of game developers around the world, participants were asked about their studio’s interest in both cryptocurrency as payment and NFTs in general. The results were overwhelmingly negative: 70% of respondents had zero interest in NFTs and 72% of respondents want nothing to do with cryptocurrencies for payment.
To quote one anonymous developer who responded to the survey, “How this hasn’t been identified as a pyramid scheme is beyond me.”
This is an interesting sentiment about a market worth over $40 billion in 2021. It will be similarly interesting to see what happens when the owners of gaming companies see that number and then run up against their developers’ seemingly widespread disinterest in the entire endeavor.
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Here's a bizarre item of note from the NFT world: a French surgeon is in some legal trouble right now for trying to sell an NFT of an X-ray of a bullet lodged in a former patient’s forearm. The image, which was listed on OpenSea for $2,776, has been withdrawn from sale as the woman whose arm it is has expressed outrage at the invasion of her privacy and is pressing charges against her former doctor. Not a good look, and a terrible way to spread the gospel of blockchain.
Bitcoin and Ethereum are both close to 50% off their all time highs, seen just a few months ago, with Bitcoin dipping near the $30,000 mark at times this past week and Ethereum headed for $2,000. What this means in the short term is that $130 billion—yes, billion with a B—in value was wiped out of the crypto market over just the 24 hour period leading up to this Monday morning. Taking a step back, it looks like two pet theories of crypto enthusiasts are currently being seriously tested: (1) that Bitcoin and other cryptos can act as a hedge against inflation, and (2) that the crypto market isn’t directly correlated to the stock market. Neither of these seems to be holding up very well at the moment, and investors may find themselves questioning the supposed benefits of crypto investing over the coming weeks.
The crypto sell off isn’t just affecting the currencies themselves. Coinbase, one of the largest crypto exchanges out there and a publicly traded company as of last April, is also down close to 50% from it's all time high price. You can now snap up a share of the stock for under $180…time to buy the dip?
To add fuel to the fire of uncertainty surrounding the future of crypto, increased regulation could be right around the corner. The Biden administration is set to release an executive order outlining a comprehensive crypto strategy and requiring federal agencies to take a closer look at the risks and potential of cryptocurrencies in general. This order could come as soon as February and may have a huge impact on how cryptocurrencies are dealt with as an asset class moving forward.
The big story in the commodities market is tied up with Ukraine. Tensions with Russia are ratcheting up, and the US State department has already ordered the families of embassy employees, as well as any non-essential employees, in Ukraine to evacuate the country.
While Putin is denying an imminent invasion, there are currently about 100,000 Russian troops on the border of Ukraine, leading to market worries about the future of everything from natural gas to wheat to aluminum. There are no indications as of yet that large scale sanctions from the US and/or Europe on Russian natural gas, oil, agriculture, or mining companies are forthcoming, but it's worth noting that a round of 2018 sanctions caused aluminum prices to spike to their highest level in over six years before diplomacy efforts were able to defuse the situation.
Oil prices are up over 10% for the year, and could continue to rise for a while still. OPEC countries are failing to meet their quotas and get production back up to pre-pandemic levels. For the month of January, we’re looking at a gap of about 700,000 barrels between demand and supply globally. Depending on various geopolitical factors (Ukraine, the potential reinstatement of the JCPOA, etc) as well as short term mechanical and logistical issues, we may be looking at an extended stretch of rising prices or a dip as supply levels become able to meet worldwide demand.
A recent report valued the global wine market at over $340 billion in 2021 and predicted that number would rise to almost $457 billion by 2028. That’s a steady compounded annual growth rate of 4.3%.
Wine investing platform Vinovest is now partnering with registered investment advisors and institutional investors through the creation of actively managed wine funds. For $5 million, investors are able to access their own individual fund, or for $100,000 they can buy into the platform’s flagship fund.
Real Estate & Farmland
Real Estate & Farmland
Existing home sales in 2021 hit their highest level since 2006, and increased 8.5% from the previous year, with 6.12 million sold over the year. While some investment experts are warning of potential bubble action in the real estate space to go along with the crypto and stock markets, others say that the current housing market conditions have underlying contributing factors like lack of new construction and outsized demand that will keep home prices at record highs over the coming year.
Farmers in some parts of the US are experiencing sudden leaps in net worth, far outpacing the already pretty crazy residential real estate market of the last year. While median US home prices jumped almost 16% last year, farmland values in certain areas of the country increased at double that rate. Excellent news for those already owning land, slightly less exciting for those trying to purchase farmland now. However, farmland values have risen almost every year over the past three decades, so the outlook for new investors is still bright.
Everyone’s favorite platform for trading sneakers and streetwear, StockX, is breaking into the metaverse game, with Vault NFTs. The NFTs traded on StockX will be tied to physical items stored in a climate controlled facility; the idea being that trades will become cheaper and more efficient for Stock X users. Check out the full statement from StockX CEO Scott Cutler here.