Week Ending July 22, 2022
Hope at last?
Last week’s rally eases fears for many investors. Though I might warn that there is still space for one more push lower – as I projected in last week’s post – before this contraction period comes to a close.
This week I illuminate the need for the Nasdaq – for example – to stay above the 50-day moving average in one of today’s chart examinations. If it can do so, we may have locked in our bottom already. One can hope.
At AllOne we continue to focus our attention on the long-term and our investment in consciously oriented institutions that create inherent societal value – whether in a recession or not. If there’s a specific topic you’d like me to illuminate just shoot us a response and we’ll do out best to cover it.
Below is your Weekly Market & Economic Update.
Warmly,
Mark Sauer
info@AllOneWealth.com
+1(310)355-8286
Charts of the Week
Energy & Food’s Effect on CPI, Corporate Profits Vs. Inflation & The Velocity Of Money (M2)
Market Update
Global Equities, Fixed Income & Commodities
Global Equities: Markets were in rally mode until a Friday pullback, but still finished with weekly gains. The S&P 500 was up 2.6% while the Nasdaq Composite gained 3.3% and the Dow Jones Industrial Average rose 2.0%. From a technical perspective, the major indices are sitting right above the 50-day moving average line for the first time since April but will need to take another leg higher to break out of the year-long downtrend. Developed International stocks gained 3.3% and Emerging Markets were up 2.1%.
Economic Update
Housing, Manufacturing & Tech Earnings
Housing Market Deflating: The Fed’s rate hikes are taking off some of the froth in the housing market, as mortgage demand has steadily fallen and this week hit a 22-year low, down –7% for the week and nearly –20% lower than a year prior. The average rate for a 30-year fixed mortgage is up to 5.82%, up from 3.11% a year ago. Existing home sales declined to an annualized rate of 5.12 million, a –5.4% monthly decline and a –14.2% dip from a year ago.
Charts of the Week
Nasdaq finding its bottom?
Our first Chart of the Week is a one-year view of the Nasdaq Composite and its 50-day (blue line) and 200-day (red line) moving averages. The Nasdaq has been locked in a bear market decline since the start of the year, with the 50/200 “death cross” confirming the bear case back in mid-February. Since mid-June, stocks have put in a series of higher lows and higher highs, allowing the Nasdaq to push back above 50-day resistance for the first time in 4 months. The backdrop of a hawkish Fed and potential US recession is challenging, however there is a potential case to be made that the bottom could be in for the Nasdaq if the 50-day support holds.
Bitcoin as well?
A similar look at Bitcoin – a one year chart exhibits the 50/200-day moving averages – suggesting that if BTC can remain above its 50-day moving average we could see a change in trend as well. I have had a low end target of nearly $10k for BTC over the last couple of months but we do find that the Nasdaq and Bitcoin are well correlated. Suggesting if the Nasdaq has indeed found its bottom so may have Bitcoin and the greater crypto-oriented market?
USD Vs. Bitcoin – Inflation
Sticking with the theme of BTC, and inflation. For the Bitcoin maximalists who believe it will become our primary transactional currency we can consider its inflationary and deflationary nature Vs. USD. We typically pay for goods with U.S. dollars. Hence, the consumer price index (CPI) looks at a basket of goods priced in U.S. dollars. But what if the CPI were priced in Bitcoin? The FRED graph below shows the inflation rates for this basket of goods in U.S. dollars (blue line) and in Bitcoin (red line).
Our current high inflation rate in U.S. dollars is dwarfed by the towering peaks of the inflation rate in Bitcoin—not to mention Bitcoin’s wild gyrations. Never in the history of the U.S. dollar has the inflation rate reached the heights that Bitcoin has on several occasions in just a few years.
Bitcoin also exhibits severe deflations. That’s problematic for a currency used for transactions: With deflation, consumers expect goods to become less expensive and thus wait to buy, which can lead to further economic instability. To be clear: Bitcoin is used very little for transactions currently, maybe because of these repeated deflations. But could also be due to its speculative nature at this time in its history. Only time will tell, but I am of the mind that Bitcoin holds its own form of economic value and should not be simply compared to USD, Gold, or other traditional securities. Nor will it be used simply as a currency, in any point in the future, despite its classification as a crypto-currency.
