Apr. 5 Markets Report: We're Doing Ok...For Now
The boogeyman of an inverted yield curve is keeping some investors up at night, energy costs continue to fuel (get it?) inflation, and the master of memes himself, Elon Musk, appears to have designs on his favorite social media platform.
Updated May 4, 2023
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The war in Ukraine rages on, and as the conflict enters its sixth week, the news is decidedly mixed. While Ukrainian forces have managed to retake certain Russian-occupied territory, the uninhibited violence perpetuated against Ukrainian civilians is both tragic and likely to continue. And while this war is obviously most devastating for the Ukrainian people, the rest of the world is not going to go unscathed. Whether we're talking looming grain shortages that will harshly affect poorer countries, or soaring energy costs and inflation already plaguing wealthier nations, no one's getting off scot-free.
Following the EU’s sanctions against Russian energy imports, statistics office Eurostat has reported a headline inflation of 7.5% for March—up a massive 1.6% from February. Over in the US, tax season is upon us, the BA.2 variant now accounts for 55% of all Covid cases, and investors fear that there is a recession looming.
On a lighter (and more curious) note, Elon Musk is in the news yet again—this time for becoming the largest stakeholder in Twitter, a platform he's repeatedly complained about in the past. But what does he want to do with that stake?
Check out the details and get updates on more of your favorite asset classes below.
While equities have been choppy day-to-day, they still closed off March in the green. The Dow Jones inched up 3.80%, the S&P 500 gained 6.55% and the NASDAQ soared 9.28%.
There was barely any movement on the weekly time frame though, with the Dow, S&P and NASDAQ shifting -0.12%, 0.04%, 1.05% respectively. But that might change for the better as April is a historically strong month for stocks.
Twitter (+28.81%) and Nielson (+23.41%) are among the biggest gainers this week. The former popped on news that Elon Musk bought a 9.2% stake in the company while the latter pumped after Nielsen agreed to be acquired by a private equity consortium. Musk has yet to indicate what he intends to do with his stake, with observers speculating that he might do anything from pushing for Twitter's algorithm to be open source to requesting a board seat to fully acquiring the company.
US-listed Chinese stocks like China XD Plastics also blew up over 200% after it was announced that The China Securities Regulatory Commission is working to share company audits with US authorities.
Bonds made some dramatic moves this past week too, with the 10-year Treasury Note briefly reaching a 3-year high of 2.5%. But what really spooked investors was seeing the 2-year Treasury yield rise above the 10-year yield. This so-called inverted yield curve is a warning sign that the US economy could be headed for a recession. For context, the indicator is scarily accurate, with 22 out of the 28 inverted yield curves since 1900 resulting in a recession (including 2007 and 2020).
Mortgage rates have been steadily increasing all year. But last week, the 30-year fixed-rate mortgage skyrocketed to a 3-year high of 4.95%.
Rising rates, the shrinking supply of homes for sale and the prevalence of bidding wars, is prompting buyers to pursue condos instead of single-family homes. But even that has had the unintended consequence of pushing condo prices to record highs. According to Redfin, the average US condominium has increased 14.6% year-over-year.
But buyers aren’t the only ones struggling in these market conditions. According to a new report by the NYC Rent Guidelines Board, the net operating income of rent-stabilized buildings fell 7.8% in 2020. And landlords have been struggling to cover heating, water and maintenance costs ever since.
This coming June, building owners are hoping that the Rent Guidelines Board will approve a large rent increase. But where will that leave struggling tenants?
After last week’s massive rally to nearly $48,000, Bitcoin retreated to the $45K-46K range. Most altcoins followed suit by shedding some gains. Ethereum, on the other hand, is holding strong at around $3,500, leading some analysts to believe that ETH is the one leading this market cycle.
But regardless of the crypto pullback, we’ve seen a lot of bullish events for BTC in the past few days. For one, the 19 millionth Bitcoin was mined on Friday, which means that over 90% of all bitcoin is now in circulation. And institutions are buying it up like crazy.
Coin Shares reported $95 million of institutional inflows into BTC last week alone. Let’s not forget that Terra is also steadily buying billions of dollars worth of bitcoin. And mega-bull Michael Saylor even took out a $205 million BTC-collateralized loan to add even more bitcoin to his $5 billion treasury.
At some point, there’s just not going to be enough bitcoin to go around. But hold on there, matador. It’s not all bullish news.
$622 million worth of ETH and USDC were hacked from the Ethereum sidechain Ronin, which is home to the popular play-to-earn game Axie Infinity. The SEC rejected yet another Bitcoin ETF. And US President Joe Biden released a budget proposal that introduces a horrendous tax strategy for digital assets.
The most ridiculous part of the proposal is to tax unrealized gains. In the volatile world of crypto, that would mean paying taxes on “theoretical” gains that could be wiped out in a matter of minutes.
And that’s not even the biggest legal blunder made this week. The European Parliament approved a proposal for non-custodial wallet providers (e.g. MetaMask, Ledger) to KYC their users. This slap in the face was enough for the CEO of Coinbase to respond to this proposal, rightfully calling it anti-innovation and anti-privacy.
With all the war, inflation and uncertainty this year, investors are shifting their portfolios more toward hard assets like gold and natural gas.
Even so, Gold hasn’t performed all too well this week, sliding -0.34% to the $1,930 range. But due to the current economic climate, the yellow metal is likely gearing up for another rally.
While the US is fighting tooth and nail to prohibit Russian commerce, the Russian central bank has begun buying gold at a fixed price in rubles. The logic behind this move? Russia intends to establish a gold standard to prop up their currency and become independent of the US dollar system.
To that end, Russia has also signed a decree that demands “unfriendly” countries to pay for gas in rubles. Lithuania wasn’t having all of that, and has become the first EU country to cut off Russian gas completely.
Over in the US, the White House announced that they will release 1 million barrels of oil per day from the nation’s strategic reserves to push down record high gas prices. Let’s just hope that domestic production can ramp up to meet demand before the reserves run dry.