weekly stock market update
market go up!
This is a weekly market update (I post daily to TikTok). I publish these once a week (beta phase), as well as single stock pieces (1-3x a month) and macro deep-dives. I also publish on TikTok, Youtube, and Twitter!
Youtube linked here :)
The dip that just keeps on dipping :/
but tbh, the market would yank itself out of that quicksand in one sec (it just needs a huge CPI print in order to do so :) )
What Happened in the Stock Market This Week?
Strength in healthcare and real estate this week! Financials and basic materials drag - will be interesting to see how Financials move this week with the upcoming FOMC meeting!
This past weeks market performance by sector 1 Healthcare +2.8% 2 Real Estate +2.6% 3 Technology +1.6% 4 Comm Services +1.5% 5 Utilities +1.1% 6 Consumer Cyclical +0.8% 7 Energy +0.4% 8 Consumer Cyclical -0.4% 9 Industrials -1.1% 10 Basic Materials -1.2% 11 Financial -1.3%
Market Movers
Lots of movement in the market this week. I won’t touch too heavily on the meme stonks (now including CLOV, WEN, and WISH, amongst others)
Traders spending a lot on options premium for AMC - “more than SPY, QQQ. and TSLA combined”.
Everyone seems to think that AMC is going to $145 - as this WSJ article said, “the traditional relationships between volatility and stocks have been turned on their heads”
And that’s on gamma, large amounts of volume, and liquidity.
Source; WSJ
Economic Policy
ETF Unwind: The Fed has begun to taper!
RRP: However, the RRP is still full-steam ahead! (Read my write-up on that here).
CPI: The market was very odd post-CPI print.
CPI came in hotter than expected (4.7% expected vs 5% actual) but the market shrugged it off. A lot of the print was transient (1/3 of the increase was from used car prices) so it makes sense to shake some of it off
But the market responded in an interesting way - with the stock market going green, and bond yields actually FALLING.
Why did the stock market go up? Probably because the market thinks inflation is actually transient - they aren’t worried about this 5% print because it’s expected to pass. The market believes the Fed now. And because the market believes the Fed, they think that the Fed will remain accommodative because there won’t be inflation.
Why did bond yields go down? Potentially because the market thinks that the economy is going to slow down. It’s paying more attention to the jobs report (and lower hourly wages). It doesn’t care as much about inflation - but it is paying attention to the signs of a weak economy
Real average hourly earnings for all employees decrease 0.2% in May go.usa.gov/vrU #RealEarnings #BLSdata
Conclusion: Essentially, the stock market is unworried about inflation because it’s reliant on the Fed (to an extent) and the bond market is pricing in an economic stagnation.
On the flip side of that narrative, there are also worries of stagflation - inflation + lack of economic growth (stagnation). More on that in another piece.
Crypto
Getting some BTC exposure - Volt Equity applied for an ETF that would give investors exposure to Bitcoin - primarily through “investing up to 25% of fund’s assets into Microstrategy”
Microstrategy? Microstrategy is a company that is very dedicated to Bitcoin, and they own a substantial amount of it.
They are issuing $400mn in high-yield bonds to buy more bitcoin - but the structure of the offering is very interesting:
Collateral: “Unlike the company’s existing notes, which convert into stock, investors in the new issue won’t benefit from appreciation in MicroStrategy’s digital asset portfolio. But they will have the actual business as collateral.” Business, not bitcoin
Going Macro: “MicroStrategy’s existing bitcoin portfolio will be held by a newly formed subsidiary, MacroStrategy LLC”
So the new bond holders won’t have any of the existing ~90k bitcoin as bond collateral - which makes these bonds *not enticing* to say the least. The company is tied to the movement of Bitcoin, at this point.
But the yield isn’t great - it’s actually quite bad (and that is mostly because the whole junk bond market is weak).
So this is essentially a 7y margin loan “secured” by a highly volatile asset (with a large chunk of MSTR existing assets exempt) and a yield uplift of like 400 bps *at best* over the 3mth fair margin loan rate as measured by futures? What idiot is buying this?
MicroStrategy announces pricing of $500 Million of 6.125% Senior Secured Notes due 2028 to acquire additional #bitcoin. $MSTR https://t.co/qEhHtJS69Q
Michael Saylor @michael_saylor
Ironically (?) the Fed indirectly owns Bitcoin because of them and because of their purchase of junk bond ETFs, which Microstrategy is a part of (full circle!)
El Salvador adopted Bitcoin as legal tender! It will use volcano energy, and it is an interesting development, for several reasons:
Dollar as reserve currency
The problem for "dollarised" countries is that because they do not have their own currency, they must dance to the monetary and fiscal tune of whichever country issues the country they use. I say monetary AND FISCAL because of the overriding need to maintain a positive BOP. 2/El Salvador eventually might not *need* the dollar anymore (one day). But it makes sense for countries in developing nations to adopt BTC, as Frances highlights above, because it gives them them the opportunity to get away from currency pegs.
Frances didn’t say this - but I think it could be the first punch at the USD as the world’s reserve currency. Frances also highlighted the fact that El Salvador has immense renewable energy because of its volcanoes - and that will hopefully give it more power down the road too
(but we all know that with great power comes great responsibility, and it will be important that leaders take care of those resources).
The sheer technical achievement
just a lil 🧵 elaborating on something I was chatting about in clubhouse yesterday: while @nayibbukele's announcement is an immense social and political moment, all this is really more of a very specific technical achievement. 1/nIt’s cool that a country did this. Allen talks more about transferring value vs storing value (the latter of which most people have resigned Bitcoin to) - but the main takeaway is that this has *happened*.
Crypto has slowed down (see this dashboard from the Block here)
Volume: crypto volume has slowed
Trade Volume of NFTs: trade volume has slowed on NFTs, which were all the rage just a few long months ago
Social Media: less people engaging on social! always a tell-tale sign of the amount of pumpcoins being produced. Society is healing.
Next Week
FOMC Meeting - Big FOMC meeting this week! We could get taper talks - I am hoping to release a piece around the FOMC and ~what it all means~ but in the meantime, nobody is expecting rates to move
Some earnings -
And some economic data!
Fun times ahead :)
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
Nice job, keep up the good work!!