(Justin Vaughn, Editor, Options Trading Report)
Another dizzying week of peaks and valleys, with the indices finishing lower…again. Every sector of the market was breached, even the technology-focused Nasdaq Composite could not escape finishing in the red. Its weekly loss was 2.8%, after whipsawing all week and finally gaining some of the ‘loss’ back late Thursday and into Friday. The index hit a low, down 8.5% early in the week, recovering nearly 6% of the downturn by Friday’s close. Some of the ‘big-boys’ clicked in helping to sustain a mini-rally Friday. The S&P 500 gained back 93.81 points to finish at 4023.89. The ever-steady Dow Jones Industrial Average added 466.36 points, amounting to 1.5% ( after being down all week) closed at 32196.66, down for the seventh consecutive week. The Russell 2000 had a positive week finishing at 1,792.657, that’s up 53.28 points or 3.08%. The Russell, made up of smaller value companies has dipped below 2000 in the past few weeks, but is now showing some strong stabilization in the past few sessions. The often forgotten index is a fine barometer to measure many market functions and trends and directions of market sectors-up and down. The market today is under intense pressure facing run-away-inflation, peaks and valleys of the Covid-19 pandemic, and the nasty war in Ukraine. All these impediments weigh heavily on the investor, with the chance conditions could get worse. In the near term the indices could see a bit more ‘adjusting’ and shedding of values, however, it is hard to imagine things will get more grievous. Inflation numbers almost have to retreat downward, with half-point tapering sure to take effect in the next month (June). Add in the cooling of the recent Covid trend-downward, and the possibility of some resolution in Ukraine, and the ‘investor’ will see some ‘light.’ Sideline investors with burning cash in their pockets are searching for investments. The yield on the benchmark 10-year U.S. Treasury note edged up from 2.815% Thursday after a four-day slide, recovering Friday as investors headed back into bonds with a frenzy. Yields climb when bond prices decline.
A Bit On Bitcoin…Bitcoin has been sinking, with the culprit, Stablecoins, a form of token that is supposed to be solid when all else fails. And failing is what Bitcoin has done, spreading to all cryptocurrencies. “The outstanding stock of Stablecoins is growing at a rapid rate, and we really need a consistent Federal framework,” U.S. Treasury Secretary Janet Yellen told the Senate Banking Committee, in reference to the disastrous actions of TerraUSD as it fell dramatically, according to CoinDesk. Walking in the crypto market is like walking on eggshells, you need calloused feet.
Russian “Victory Day” was a bust. Even with hundreds of tanks and military equipment rolling down the avenues in Moscow, Victory Day was a non-event with no mention of the war in Ukraine. Russians were force-fed strength and power in a typical propaganda move. Putin spoke of the ‘massive’ military might and the defeat of Nazi Germany in WW2, alluding to the “special military operation” in Ukraine. No mention of the 12 Russian generals lost in the Ukraine war.
Finally, the steel-makers get their due. The war in Ukraine has awakened a sleeping giant….steel, around the world. European steel companies have ‘dug-in’ to increase steel production. Almost every steel-maker in Eastern and Western Europe is working at 100% capacity. U.S. steelmakers are also running at full bore, with orders they have not seen in years. There is a tremendous need for steel, for armaments, such as tanks, armored vehicles, all kinds of defensive weapons, even aircraft, and large ships. Along with this unprecedented demand, steel prices are escalating like never before, and steel profits are soaring.
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RUMBLINGS ON THE STREET
Randall W. Forsyth, Lead writer of “UP & DOWN WALL STREET of Barron’s “Until frequently, investors faced a ‘Hobsons’ choice: Accept the volatility of equities, the return-free risk of bonds, or zero yields on cash. Short-term bonds now provide nearly the same yield as longer maturities with less risk, offering a way to ride out the current bear market in stocks.”
Jack Hough, writer of “STREETWISE” of Barron’s “But if your internet collapses because the programmer who created it a year and a half ago got in over his head while cosplaying as a central banker, you haven’t found a ‘black swan.’ You just sat under some pigeons.”
Jerome Powell, Federal Reserve Chairman, after his Senate confirmation for a second term, Barron’s “The process of getting inflation down to 2% will also include some pain…”
Stephane Ouellette, CEO of crypto derivatives broker FRNT Financial, Barron’s “Once you’re in the ecosystem, Stablecoins allow you to act as though you have U.S. dollars, when really you own crypto.”
THE NUMBERS – Barron’s
$2.8B – Inflows of stock exchange-traded funds in April, down from $76.2 billion in March, the lowest since the early days of the pandemic
3.9% – Growth in China’s trade in April from a year earlier, down from 14.7% in March
91 – Average price of junk bonds in cents on the dollar on May 9, the lowest since May 2020
25% – Decline in mortgage originations in the first quarter from a year earlier, as interest rates rose.
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