Tech tumble drives sector rotation

  • Global equities fell -0.6%, taking the YTD rally to +9%. Stronger-than-forecast US inflation stoked fears of an early tightening of monetary policy. This accelerated the so-called ‘rotation’ trade, with the tech sector dragging down markets from NASDAQ to Emerging Markets, whilst financials were boosted.
  • Equity corrections (10%+ falls) are reasonably rare, with 24 over the last four decades for the S&P 500, and clustered around crises. It has also paid to buy them, with markets on average higher a year later.
  • We see markets as well-supported, with GDP and earnings surprises offsetting likely lower valuations…

As the crypto market races back towards all-time highs, Ethereum is shooting ahead. The second-largest crypto has gained over 20% to top $3K for the first time.

Close behind, the altcoin market has been supercharged by Ethereum’s strength. Chainlink, XRP, and BNB are surging with double-digit weekly gains, and Uniswap has jumped 17% ahead of the Uniswap v3 launch on May 5th.

A strong April, but weaker seasonality ahead

  • Global equities saw another healthy consolidation week. This closed a strong April, rising 3% led by the US (+4%), and the tech sector (+7%). Commodities also surged (+8%). The monthly laggards included US bonds (+0.6%), the USD (-2%), and Bitcoin (-4%).
  • Equity seasonality is more difficult ahead, as we enter the lower volume summer months. The long term average S&P 500 November-April monthly return is 1.6%, more than double May-October 0.6%.
  • We see lower but positive returns ahead, helped by a still under-estimated GDP and earnings recovery.

The crypto rollercoaster has taken another sharp turn, with Ethereum hitting all-time highs last Thursday just before Biden’s plans to hike capital gains tax triggered a sell-off across global markets.

Bitcoin plunged below $50K on the news, falling for five consecutive days before bouncing to $52K. Ethereum, on the other hand, managed to weather the storm and emerge with 13% weekly gains. It was joined by a few other resilient altcoins including Uniswap which rose 12%.

Taking a healthy performance breather

  • Global equities took a healthy performance breather last week, easing 0.2%, and leaving up +8.9% YTD.
  • Defensive sectors real estate and healthcare rose, whilst cyclicals energy and discretionary fell most.
  • We think high valuations remain well supported by a still under-estimated GDP and earnings recovery.
  • Our top-down investor sentiment index is very high, and normally a negative, showing a lack of potential new buyers. But bottom-up indicators show a much healthier situation, with the recent calming of prior high-flying segments, such as IPOs, EVs, and solar.

Good news as enter peak earnings week

  • Q1 earnings…

Bitcoin and Ethereum surged to hit simultaneous all-time highs early last week, tapping $65K and $2.5K respectively as Litecoin rose above $300 for the first time in three years.

Yet the buying party came to an abrupt end when the highly-anticipated Coinbase listing failed to push prices even higher. Euphoria turned to fear as traders sold the news, prompting Bitcoin to plunge 15% before bouncing.

Wall Street hits double-digit return

  • The S&P 500 is now up 11% so-far this year, and global equities are not far behind, up over 9%.
  • Sectors in the weekly driving-seat were utilities (as bond yields fell) and materials (commodities rose).
  • If sustained this would be a rare third straight year of double-digit S&P 500 returns. We have only seen this twice before since the 1970’s: the 5-year bull run into the 2000 tech bubble, and between 2012–14.
  • With P/E valuations already high at 22x, versus a 10-year average 16x, the earnings outlook needs to keep improving to support this performance.

While Bitcoin and Ethereum are resting at the key milestones of $60K and $2k respectively, smaller altcoins are darting ahead, pushing the total crypto market cap beyond $2 trillion for the first time.

BNB is the biggest winner of the week with 50% gains, making the market cap of the coin more than $60 billion, bigger than traditional banks including Santander. Close behind, other altcoins have also made big gains, with Zcash, Litecoin, and IOTA all boasting a 16% increase.

Wall Street lifted by job data

  • US stocks jumped last week, with the SPX500, DJ30, and NASDAQ100 all up significantly.
  • In the SPX500, Energy stocks were a pain point, as the price of oil tumbled on the back of an agreement between OPEC and its allies to gradually begin increasing production between May and July.
  • The job market has shown signs of improvement as the NFP report showed that there were 916,000 non-farm job openings last month, while economists polled by Reuters predicted an average of 647,000. The figure for February 2021 has been revised upwards to show 468,000 jobs…

Wall Street ends Q1 on a positive note

  • Despite some perceived market nervousness, Q1’s closing saw continued strong equity markets and better market breadth. This was led by US exceptionalism with a double-driver of more stimulus and vaccine rollout leadership.
  • Last week’s ISM report came in at 65, its highest level since 1983.
  • Looking into Q2, April is historically a good month for equities, with average S&P returns being favourable, only surpassed by July.
  • In Europe, The PMI for the Euro area stood at 62.5 in March, after 57.9 in February. This is its highest level since June 1997.

Sofie Hendrick

Employee at Delta Crypto Portfolio Tracker

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