Despite Wednesday’s losses in the major U.S. indexes, stocks are flying out of the gate in 2023.
The Nasdaq Composite (^IXIC) and S&P 500 (^GSPC) are having their best start to a year since 2019.
And in enjoying these gains in the new year, stocks are diverging from the trends that emerged in the second half of 2022. A move that has important implications for investors.
Start with the biggest loser of the day, the Dow Jones Industrial Average (^DJI), which was down 1.81%, or 614 points, on Wednesday, its worst showing in over a month. As of late December, the Dow had outperformed the Nasdaq by 20 percentage points — the most since the dot-com bubble crash two decades prior.
Despite this outperformance, however, the Dow ended 2022 down nearly 9%. There were few places for investors to hide in 2022.
But Wednesday, the Nasdaq outperformed the Dow by 57 basis points. Particularly notable coming on such a negative day for the market. In the first 11 trading days of the year, the Nasdaq is already up 4.69% compared to the Dow’s meager 0.45% gain.
If we dive inside the benchmark S&P 500 and look at relative sector performance, 2023’s year-to-date sector chart is nearly the inverse of 2022.
Last year’s second-worst-performing sector is this year’s best: Consumer Discretionary (XLY).
Helping matters are the sector’s two largest megacap components — Amazon (AMZN) and Tesla (TSLA) — which are both nicely positive so far in 2023, gaining a little over 4% each.
The two other sectors besides consumer discretionary that house some of the market’s biggest names — Tech (XLK) and Communication Services (XLC) — are also serving as leaders this year.
And let’s not gloss over the strength in Real Estate (XLRE), which is up more than 5% after having just endured one of the most challenging housing markets in a generation last year. Another big narrative shift after 2022.
On the flip side, those red sectors in the above heat map — Utilities (XLU), Health Care (XLV), and Consumer Staples (XLP) — were the least-bad sectors after Energy last year. These sectors are also commonly referred to as defensive areas of the market for investors to find shelter in a storm. In the 2023 market, however, it seems safe trades aren’t quite safe.
The bond market is also confirming moves back into these formerly unloved, growthy areas of the market that took the biggest hits a year ago.
On Wednesday, the yield 10-year on U.S. Treasury notes (^TNX) plummeted 16 basis points to 3.375%, a four-month low. All else equal, sinking bond yields favor growth stocks that depend on lower interest rates.
And although buying bonds is often seen as investors fleeing to safety, right now the bond bid appears firmly part of a risk on trade.
Finally, throw in Wednesday’s market reaction to economic news.
December retail sales surprised to the downside with a drop of 1.1%, which follows a similar negative print in November. Investors seem to be pricing in this objectively bad news for what it is — bad news — instead of trying to play 4D chess with Jay Powell and the Federal Reserve.
Speaking of the Fed, the market’s new favorite macro risk assets, bitcoin (BTC-USD) and ethereum (ETH-USD), are each up about 25% this year. Bitcoin and crypto have been particularly volatile around important Fed decisions and inflation data — leading risk markets to the upside at times, and downside at others.
Bottom line: Bitcoin is a clear leader this year among the “fringier” parts of the markets, and, currently, the direction is up.
Bitcoin and Cryptocurrency Returns YTD
Now, some of these pockets of the markets have been exhibiting strength since late last year. Under different leadership, this could change.
But this is a market starting to show the hands of winners over losers.
As Steven Strazza, director of research at All Star Charts tweeted this week: “Breakouts are sticking. Breakdowns are failing. It’s not bear market behavior.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
