Hawkish Fed drives (temporary) sharp weakness

• The Fed signalled higher interest rates could come earlier than expected, hurting equities, commodities, and boosting the USD. Tech and NASDAQ were resilient.
• We see markets well-supported and still favor assets tied to stronger growth, like commodities, cyclical sectors, and international markets vs tech and US.
• Strong earnings growth is the key insurance policy against higher market volatility. US expectations are for 35% growth this year, up 15 points from Jan. 1st. 2022 expectations are still far too low at only 12%.
• Longer-term, dividends are under-appreciated, at over ⅓ of total market returns, and…

Bitcoin is bouncing back. The crypto king has reclaimed its throne, and is closing in on $40K as the altcoin market stagnates.

El Salvador’s approval of Bitcoin as legal tender on Thursday could be credited with the turnaround, boosting market sentiment and sparking a wave of interest from politicians across Latin America. Then on Sunday, Twitter trickster Elon Musk aided the recovery, claiming once again that “Tesla only sold around 10% of holdings to test liquidity” and that the car company will allow Bitcoin transactions again when miners have improved their green credentials.

NASDAQ rebounds as bond yields fall

• S&P 500 new high with ‘peak’ inflation, patient Fed, and 10-year bond yields under 1.50%. NASDAQ and ‘bond proxy’ real estate led, whilst financials fell.
• The so-called meme stock rally has returned, with our index up over 50% the last month, and showing the benefits of stock diversification amidst strong signs of broader retail investor interest in markets.
• The World Bank followed the OECD in raising global GDP forecasts to +5.6% for this year, as reopening picks up, supporting earnings. …

Bitcoin has drifted sideways this week; caught between waves of volatility as bad news from China and tweets from Elon Musk rock the market back and forth.

Prices approached $40K on Friday, before Musk tweeted a broken heart emoji with the Bitcoin logo, triggering a 7% drop. Fears over his influence on the market were then calmed as he changed his profile picture to a laser-eyed Bitcoin anime figure, but the recovery was blocked by news that Chinese social media platform Weibo had suspended crypto influencer accounts.

International leads equity markets higher

• Global equities rallied +0.7% in a holiday-shortened week, led up by international markets again, to take YTD gains to 11%. Sector performance was led by energy and real estate, whilst healthcare fell. Bonds stayed under pressure, whilst commodities hit highs. AMC Entertainment (AMC) +83% and Blackberry (BB) +38% led a so-called meme stock rebound.
• OECD was latest to raise global GDP growth outlook for 2021, to 5.8% from 4.2% as recent as December. This supports higher earnings, where expectations are +36% this year but still only a low +10% for next.
• Strong earnings growth is…

Bitcoin is searching for firm footing around $35K after another week of volatility has washed over the market.

The leading cryptoasset hit lows above $33K on Sunday before bouncing, with bullish momentum supported by some of the loudest voices in institutional investing. Ray Dalio admitted to owning Bitcoin at Consensus last week, saying he’d prefer holding it over bonds in the event of inflation. Meanwhile, famed investor Stanley Druckenmiller said that he thinks “Bitcoin has won the store of value game.”

Tech leads a strong close to the month

• Global equities rallied +1.1% last week, led up by emerging markets (EM) and tech, to close a positive May. NASDAQ rebounded +2.1%, whilst small caps resumed outperformance, and are now +15% YTD.
• Markets are more rational, resilient, and supported than feared. Recent highflyers, IPO’s and SPAC’s, Tesla and ARK, FAANGs and NASDAQ have lagged. But equities are up +10% YTD, VIX volatility below average, and good market ‘breadth’ a large support.
• Strong earnings growth is the key insurance policy against risk of lower valuations, as inflation and bond yields rise. …

Anxiety has washed over the crypto market, with cascades of selling push prices down to the same levels as before Tesla announced its Bitcoin treasury allocation.

Tweets from Tesla CEO Elon Musk have been widely blamed for giving the market jitters, which turned to full-blown fear as China called for a crackdown on Bitcoin mining and trading. The leading cryptoasset dropped to hit nearly $30k on the news, before bouncing back to over $35K.