It was another hectic month on Wall Street, marked by Q1 earnings from large-cap tech stocks, Federal Reserve meeting minutes, inflation fears, and another crypto roller coaster ride.
Q1 earnings continued to roll in hot, with tech heavyweights in particular blowing away estimates. But like last month, their stock prices mostly fell despite great results as high expectations were already priced in. The result: the S&P 500 and Dow marked new all-time highs, but the tech-heavy NASDAQ lagged.
The Federal Reserve meeting went as expected: no change in policy and a confirmation that the current pace of “money printing” will continue for the foreseeable future at a staggering rate of $120 billion per month.
Financial markets then tumbled the most in two months following the release of the Consumer Price Index for April, which showed a faster-than-expected acceleration in inflation. This rising inflation fear drove up government bond yields and gold prices.
While markets remained focused on the economic reboot and inflation, they also kept an eye on the flare-up of geopolitical risks in the Middle East and in the relations with China.
With China’s rising power on the world stage, the major G7 economies felt increasingly threatened and agreed at the G7 meeting to work together to counter what they consider arbitrary and coercive economic practices.
Financial markets were in consolidation mode for a while as unexpectedly volatile risk-off trading in cryptocurrencies reignited concerns about inflation and valuations.
Bitcoin’s slide began with Elon Musk suspending Tesla’s acceptance of bitcoin payments and criticizing its energy use. China’s central bank then added to the down trend with a statement warning against virtual currencies, underscoring the Chinese government’s desire to maintain tight control over this emerging asset class. And on top of that, news also broke that the U.S. may require crypto transactions of $10,000 or more to be reported to tax authorities.
As usual, the unexpected dips of over 50% for the major cryptos led to huge liquidations for leveraged investors and a lot more volatility in the days that followed.
So after an eventful month the S&P 500 ended at 0.55% and the MSCI World Index at 0.81%. 20-year bonds were flat at 0.00% and gold was up 7.68%. And Bitcoin fell -35.35%…
Our strategies had a lackluster month with Universal at -0.60%, Progressive +0.3% and CryptoMax at -9.6%.
Musk’s actions showed how a few tweets can still shake the entire crypto market. But more than that, the last few days highlighted the growing regulatory threat to crypto, as governments try to defend their lucrative monopolies over their currencies.
To close, I could not find better words than last month: Avoiding overconfidence, following a clear strategy, and managing risk through diversification will remain a focus, as it appears that the recent strong returns and low volatility will not continue indefinitely.
Stay happy, healthy and wealthy!
Omar