(Justin Vaughn, Editor, Options Trading Report)
Trying to elude the Bear…With the indices suffering their eighth consecutive weekly loss and skidding into ‘Bear’ territory, investors have become ‘shell-shocked’ and eager to divest. Already nervous over inflation, Covid-19 peaks, the frustrating Ukraine War, turmoil in the trading market deepens with the depressing conditions. As stocks got hammered all week, with few peaks, and mostly valleys, a cautious rally late Friday nudged the Dow a little higher. The S&P 500 and Nasdaq Composite also had a rocky seventh-week loss, the longest extension since 2001, after the Dot-com debacle. The Dow Jones Industrial Average closed down 2.80% to 31,261.90, after a dreadful week, salvaged a bit by Friday’s rally. For the year, the Dow is down 13.97%. The S&P 500 followed suit as it touched on the Bear’s turf, finishing down 3.08% for the week. So far this year the S&P is minus 18.14%. The tech-heavy Nasdaq Composite dropped 3,82% and finished the week at 11354.62. The Nasdaq leads the indexes in falling this year, down 27.42%. With the heavy high-tech focus, corrections are sometimes magnified. Brent crude edged up again Friday, adding 51 cents a barrel to finish at $112.55 a barrel. Bitcoin had a lackluster week, hovering in the $29,000 range, licking its losses after Stablecoin fell apart. Since November 2021, the value has dropped 57%, after reaching a monumental high near $70,000. U.S. Government bonds have been the stalwart for many U.S. investors enduring the ‘storm’ and giving reassurance on yields as bond assets always “produce in a storm.” The yield on the benchmark 10-year U.S. Treasury note dropped to 2.785% Friday from 2.854% on Thursday. “Bond prices rise when yields fall,” according to Cboe.
Look no further than the Nasdaq Composite, a tech-focused index with many high-flyers that have soared in the past two years, way beyond anyone’s expectations, with their shares demanding prices never before seen. The tremendous gains scored by the ‘big-boys,’ (Amazon, Alphabet, Tesla, Apple, to name a few), have literally outpaced the market. All these favorites are down significantly, and they could still be over-priced according to strategists and advisors. Will the Bear kick in fully and de-price these stocks? Hopefully, we are near or at the bottom and future carnage is not on the horizon, with a short-term Bear nearing an early in and out. Some analysts compare this time frame of selling to the horrific sell-off of the Dot-com vanity in 2000. Even though earnings continue to come in positive, inflation takes a grip and could stymie future growth and future demand. A key tip-off could be the Russell 2000 index and its make-up of a broad array of value stocks representative of the ‘smaller’ companies. It is ‘off’ 24% this year, a strong indicator that more downside is very possible. The roller-coaster is still rolling and the indexes are quite likely to suffer a bit more. The higher ‘they’ climb, the harder they fall.
Euro Versus The Dollar…The soaring dollar is nipping at the euro, ready to overtake its long-time rival. Helped by the 7% decline in the euro against the dollar, the euro has faced many obstacles in the past year. Runaway inflation, the unstable Eastern European countries, and now the Ukraine War with energy shortages looming. The euro dropped to a historic low of $1.035 this month, down from $1.137–last year’s ending value. Friday it had settled at $1.057, just 5% above the dollar. That might be short-lived as the Fed raises interest rates. That will boost the dollar, as higher rates make the dollar more desirable, especially U.S. assets. The European Central Bank is always playing ‘catch-up’ to the Fed, not a bad thing in the euro battle.
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RUMBLINGS ON THE STREET
Ibrah Roukaya, Daily Insight BCA Research, Barron’s “Small-business owners’ sentiment has been deteriorating since mid-2021, with rising inflation being reported as the top concern. The six-month outlook (recently) fell to an all-time low.”
Brian Routledge, Professor of Finance at Carnegie Mellon University, Barron’s “If you’re a regulator, I think what they’re worried about is not that the crypto community goes poof; its that the losses at Coinbase then feed to PayPal and then feed to a bank.”
Wilkshire Associates, Barron’s “The U.S. stock market has shed some $10.1 trillion in value or 19.9% this year through Thursday. The loss ( relatively recent ) with $7.1 trillion of that drop coming since the current quarter began, including $2.6 trillion in May, $1.7 trillion of which was torched just in Wednesday’s route.”
Lloyd Blankfein, former Goldman Sachs CEO, on the “very very high risk” of recession, Barron’s “If I was running a big company, I would be very prepared for it. If I was a consumer, I’d be prepared for it.”
THE NUMBERS – Barron’s
50% – Increase in wheat prices on the Chicago Board of Trade since the start of the year
750K – Number of Americans 65 years or older who died from Covid. Total death toll: one million
$100B – Fall in value of China’s junk bond market, after a sell-off driven by real estate defaults. The market is now worth some $184 billion.
8.8% – Percentage of subprime car loans and leases in delinquency in March, a record, up from 7.1% in March 2019
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