Markets in brief
Markets had another tough session on Monday as the S&P 500 officially entered bear market territory. The index has fallen 22% since its last peak on January 4 and closed Monday session down 3.87%. The Dow lost 2.79%, and the NASDAQ was down 4.68%.
Investors are waiting for the Fed’s meeting on Wednesday to better position themselves. “The Federal Reserve may be more aggressive than we thought with the economic uncertainty that goes with it,” said Stéfane Marion, economist and chief strategist at the National Bank. “Could we see a toughening of the Fed’s rhetoric? Could we even go there with a rate increase that would exceed 50 points? The markets are preparing for all of this,” he continues.
“Wall Street faces a plethora of bad news,” said Edward Moya of Oanda, “but the problem is that until we see deterioration in credit conditions and market functioning, the Fed has the green light to tighten as much as possible and bring inflation under control.” For some time now, investors have had “a lack of confidence in valuations, knowing that earnings warnings are still lower despite expectations of much slower growth or even a recession in the coming months,” according to Edward Moya.
Many stocks fell on Monday such as Boeing (-8.7%), Salesforce (-6.9%) and American Express (-5.2%) which dragged the Dow down. The tech sector also suffered the same fate as Netflix, Tesla and Nvidia all fell around 7%, dragging the NASDAQ lower, while the index hit a new 52-week low, its lowest level ever since 2020.
Stocks from the travel sector experienced the same scenario on Monday. Carnival Corporation and Norwegian Cruise Line fell about 10% and 12% respectively. Delta Air was down more than 8% and United lost around 10%.
“The dramatic moves lower could indicate that many investors are profit-taking or repositioning their portfolios and may signal that markets are in “a capitulation stage,”” said Jeff Kilburg, chief investment officer of Sanctuary Wealth.
Tuesday was just as volatile for US markets, oscillating between significant gains and losses throughout the day. The S&P 500 fell 0.38% to close at 3,735.48 points, the Dow fell 151.91 points, or 0.5%, to 30,364.83 as the NASDAQ ended in slightly higher by 0.18% to end at 10,828.35 points. “It’s one of those days where the market is going to have to take a wait-and-see attitude and that’s certainly what seems to be happening with the major indexes,” said Art Hogan, chief market strategist at National Securities. “We’re really stuck here,” he added, noting that back and forth isn’t unusual before a major announcement.
Investors were still nervous on Tuesday, the eve of the Fed’s decision amid speculation that it will announce another 75-basis point hike. “The big question now is how will this monetary tightening affect the economy? And how far will the market go to hit bottom?” remarked Quincy Krosby.
The Fed “has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed,” wrote Pershing Square’s Bill Ackman in a tweet Tuesday afternoon. “Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July” and makes a commitment to aggressive increases until inflation “has been tamed,” added Ackman.
Markets were pleased on Wednesday with the Fed’s decision to raise interest rates by 75 points. The Dow ended up 1.00% ending a five-day losing streak, the S&P 500 advanced 1.46% and the NASDAQ posted gains of 2.50%.
Investors had already priced in this increase, but they did not expect the Fed to announce a possible increase of 50 basis points or 75 basis points at the next meeting. “The Fed underscored the seriousness of its mission with its first 75 basis point [0.75 percentage point] rate hike since 1994, moving quickly in anticipation of accelerating inflation,” commented Chris Low, chief economist of FHN Financial. “For the first time in years, the Fed is trying to reverse inflation, which is already well above its target,” added the analyst.
“Today’s announcement confirms the Fed’s commitment to fight the inflation battle more aggressively despite the potential aftermath from raising rates at such a rapid pace,” said Allianz Investment Management’s Charlie Ripley. “Overall, Fed policy rates have been out of sync with the inflation story for some time and the aggressive hikes from the Fed should appease markets for the time being.”
Markets once again ended Thursday’s session lower, still worried about the risks of a recession as many central banks around the world followed the Fed’s lead in raising interest rates. The Dow Jones closed down 2.42%, to end below 30,000 points for the first time since January 2021. The NASDAQ fell 4.08% while the S&P 500 lost 3.25% down nearly 24% since its latest peak on January 3rd.
“Wall Street didn’t take long to lose its enthusiasm from yesterday after (the Fed’s announcements), as other major central banks are also becoming more aggressive in their own fights against inflation,” explained, in a note, Edward Moya, of Oanda.
Stocks opened flat on Friday as Wall Street tried to regain its footing after a difficult week. The Dow fell 20 points, or 0.07%, while the S&P 500 opened slightly higher 0.28% and the NASDAQ was up 0.67%.
Volatility should be around on Friday, thanks to “quadruple witching.” This trend occurs during the simultaneous expiration of stock index futures, single-stock futures, stock options and stock index options. Quadruple witching Day occurs once every quarter and results in an increase in trading volume.
Cryptocurrencies
Cryptocurrencies also fell drastically on Monday as Bitcoin lost more than 15% to $22,603, its lowest level since December 2020. The virtual currency is down more than 66% since its all-time high in November. 2021. The drop caused stocks from the cryptocurrency sector, including Coinbase and Microstrategy, to fall 11% and 25%, respectively.
Cryptocurrencies continued their slide on Tuesday, as Bitcoin lost more than 32.85% since last Friday and more than half its value since the start of the year.
Celsius Network, a partner of the Caisse de dépôt et placement du Québec (CDPQ), announced on Sunday that it will no longer allow its customers to withdraw their investments in cryptocurrency from its platform. “Due to extreme market conditions, we are announcing today that Celsius is pausing all withdrawals, trades and transfers between accounts,” the company wrote in a statement sent to customers shortly before 11 p.m. Sunday. “We understand that this is difficult news, but we believe that our decision […] is the most responsible action we can take to protect our community,” the statement continued.
In fact, according to data published by Celsius, the latter has lost nearly US$2 billion in customer deposits over the past month. The company claimed in October to manage around $27 billion in crypto assets. However, these numbers fell to $12 billion in May and since then, Celsius has not updated this data on its site.
Cryptocurrency platform Coinbase announced on Tuesday that it would lay off more than 18% of its employees, another sign of the intensity of the crypto slide that has wiped out hundreds of millions in recent weeks. The platform’s stock fell 11% on Monday and has been down 80% for a year.
“Cryptocurrencies are still kind of an emerging market that people were trading when they were feeling good, when they were enthusiastic when they were willing to take on risk and when they had access to cheap money to do so,” said Colin Cieszynski, a strategist with SIA Wealth Management in Toronto. “A lot of those factors have changed over the last few months … what we’ve seen over the last few days, in particular, and why we’ve had this new sell off, is a sense that money is becoming more expensive.”
Total cryptocurrency market capitalization fell to $925 billion as of Wednesday, according to CoinGecko, while at its highest peak in November it was $3 trillion.
S&P 500 in Bear Market
It’s official, the S&P 500 entered bearish territory on Monday, down 20% since its last high in January. In principle, therefore, we have been in bearish territory since January. A bear market is generally defined as a decline of at least 20% from a recent high. Historically, the longest bear market lasted 62 months, between 1937 and 1946, while the worst decline came when the Great Depression began when stocks fell 86%.
In terms of stock prices, stocks have become overvalued and misrepresents the economic situation in which we were. Stocks have navigated in an environment that we could qualify as almost unreal as their value have exploded in recent years, even during a pandemic period. “For equities, the correction we have seen since the start of the year has largely been an adjustment in valuations to reality: a much tighter monetary policy will be needed to combat this inflationary situation,” said explained Robert Kavcic, senior economist at BMO, in a note published on Friday.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Have a good summer !
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
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