A wonderful weekend to you as markets rebounded to a fresh record on inflation numbers that were within economist expectations.
In brief (TL:DR)
- U.S. stocks rebounded on Friday with the Dow Jones Industrial Average (+0.61%), the S&P 500 (+0.95%) and the Nasdaq Composite (+0.73%) all higher as U.S. Consumer Price Index data charted a middle course, with prices rising within economist expectations.
- Asian stocks were uniformly lower across the board on heightened concerns over the prospective restructuring of China Evergrande Group's (-1.67%) massive debts.
- Benchmark U.S. 10-year Treasury yields slipped to 1.486% (yields fall when bond prices rise).
- The dollar fell.
- Oil rose with January 2022 contracts for WTI Crude Oil (Nymex) (+1.03%) at US$71.67 on early reports that the omicron variant only results in mild symptoms for the vaccinated.
- Gold continued to rise with February 2022 contracts for Gold (Comex) (+0.46%) at US$1,784.80 as the dollar fell.
- Bitcoin (+0.24%) was firmer headed into the weekend to US$48,517 as the cryptocurrency has yet to experience some of the spillover effects of a rally in other risk assets.
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In today's issue...
- Cathie Wood's Bold Vision for Ark Amidst a Sea of Naysayers
- Investors who Bought the Dip Scored Bigly
- Bitcoin Today is Higher on Average
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Market Overview
It's beginning to look a lot like Christmas, everywhere you go, take a look at the S&P, and finally you will see, the rally that you've always wanted more.
U.S. equities rose to a record Friday after in-line inflation data spurred traders to be that the U.S. Federal Reserve won't have to accelerate plans to tighten monetary policy.
The more sanguine inflation data, with prices rising by 6.8% according to Consumer Price Index data from the U.S. Department of Labor Statistics, is the highest since 1982, but also comes off a pandemic base from last year and relieves the pressure on the Fed somewhat to accelerate the pace of its taper.
Hospital admissions and Covid-19 cases are climbing in the U.S. again and the Fed will be wary to crush growth when the healthcare situation remains uncertain.
In Asia, the Friday session saw Tokyo's Nikkei 225 (-1.00%), Sydney’s ASX 200 (-0.42%), Seoul's Kospi Index (-0.64%) and Hong Kong's Hang Seng (-1.07%) all lower as the fallout from the China Evergrande Group's default continues to ripple through markets in the region.
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1. Cathie Wood's Bold Vision for Ark Amidst a Sea of Naysayers
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Cathie Wood's big, concentrated bets on transformative companies and sectors has seen stellar growth but some investors have lost nerve
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Wood's flagship Ark ETF must be viewed over the long term as disruptive new technologies percolate through the economy
If Henry Ford had asked consumers what they wanted, they would have said “a faster horse.”
If Steve Jobs had asked consumers want they wanted, they would have said, “a phone with more buttons.”
Thank goodness they didn’t ask.
Which is why it’s so challenging to be a visionary at times. It goes against the grain, against conventional wisdom, and it requires a conviction beyond the pale.
And that’s why Cathie Wood, made famous by her Ark series of ETFs, is facing her toughest test yet.
Wood has made aggressive bets on companies and technologies that she says will reshape the world, the most high profile of which has been Tesla, whose CEO Elon Musk has recently made a career of selling the electric vehicle maker’s stock.
These concentrated bets on transformative technologies, including everything from electric vehicles to bitcoin has paid of spectacularly.
The Ark Disruptive Innovation ETF, Wood’s flagship US$17 billion fund that combines an ETF structure with an ability to pick stocks, has generated average annual gains of about 40% over the past five years.
Critics have claimed that the U.S. Federal Reserve’s loose monetary policy has helped Ark become one of the biggest winners from the market’s embrace of moonshot bets on disruptive companies.
But with the Fed looking to tighten conditions, and soon, the tide appears to be turning and investors into Ark’s many products will need just as much conviction as Wood.
Despite a slight rebound this week, ARKK is down 17% this year alone and 34% off its peak in February.
Assets in Ark’s overall stable of ETFs has also fallen dramatically, from a peak of US$61 billion, to just US$34 billion, according to data from Bloomberg.
But in an investment environment that has seen everything from meme stocks to cryptocurrencies, metaverse to SPACs, all soar, there is method to Wood’s apparent madness.
Visionaries are often doubted in their time.
Ford was repeatedly ridiculed for building a noisy, smoky contraption that no one would want to buy, had he lost faith, we’d probably still be on horseback.
Had Jobs not persisted in making a phone without buttons, it’s possible we’d still be using Nokias.
Being a visionary is difficult, but more investors than at any time in the past have proved they are willing to ride along with Wood.
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2. Investors who Bought the Dip Scored Bigly
“Your actions speak so loudly, I cannot hear what you are saying.”
– Ralph Waldo Emerson
Forget about plunging bond yields which seemed to suggest that investors had turned bearish overnight, those who bought the dip in stocks last week have cashed in bigly, powering U.S. equities to their best rally in 10 months.
Even as the omicron variant conspired to derail the economic recovery and fresh restrictions were reintroduced around the world, even as inflation threatened to rattle the U.S. Federal Reserve to tighten monetary policy, investors bought the dip.
Bargain hunters were out in full force, powering the S&P 500 to an all-time high with gains in four of the five days over the past week.
Even the so-called “smart money” which cut equity exposure at a ferocious pace in November, re-entered the market, with hedge funds coming in as buyers while equity funds hoovered flows for an 11th straight week.
In another lesson for bears that’s been driven home repeatedly in 2021, unless you’re a sucker for punishment, betting against stocks has been an exercise in futility, with dip buyers being rewarded virtually every time the market has pulled back.
Far from tanking, U.S. stocks look set to have one of their best years on record, despite inflation, Fed tightening and omicron concerns.
Bullishness is so strong that traders are ignoring even the most ominous signals in the bond market, where short-term rates are rising, while long-term rates are falling, otherwise known as the flattening of the yield curve.
Yield curve flattening is viewed by many as a message that the Fed is poised to snuff out the economic growth that’s been an accelerant for corporate earnings by paring back stimulus and raising rates.
But with yesterday’s Consumer Price Index data from the U.S. falling short of the market’s worst-case scenario forecasts, stocks rocketed to their strongest week since February.
The U.S. Department of Labor Statistics said on Friday that CPI climbed 6.8% in November from the same month in 2020, matching forecasts.
Worst-case scenarios were that inflation would shoot past 7% or more and bets are increasing that the Fed won’t be in a rush to accelerate its tapering of asset purchases at its meeting next week, pushing the prospect of rate rises further along next year.
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Find out more about Novum Alpha as leading luxury portal Luxuo.com interviews our CEO & General Counsel, Patrick Tan...
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3. Bitcoin Today is Higher on Average
Coming into the year at “just” US$28,000, few would have expected bitcoin to have taken the course that it did.
November has traditionally been a good month for cryptocurrencies, and it did not fail to disappoint, with the benchmark bitcoin hitting an all-time-high of near US$69,000.
Although some bitcoin historians will note that the last time the cryptocurrency hit its “true” all-time-high was in mid-December 2017, where it touched near to US$20,000.
Nonetheless, bitcoin has had a volatile year and as 2021 is nearing to a close, it’s coming into its year-end near its 2021 average, a mean of around US$47,250, bitcoin currently trades around US$48,000 into the weekend.
Bitcoin posted its fourth consecutive weekly decline from its all-time-high but technical chart watchers will be quick to note that the cryptocurrency traversed the same course in 2017, hitting its then all-time-high closer to mid-December.
As mid-December approaches, could bitcoin suddenly rally again?
Interestingly, while U.S. equities rose sharply on Friday, as U.S. CPI data was within economist expectations, the U.S. Federal Reserve is due to meet next week, where initial expectations had been that the Fed would accelerate the tapering of asset purchases to reign in inflation.
Those bets have since been reversed, with investors now taking the view that the Fed will have more reason to stay the current course, which will see its monthly asset purchases of Treasuries and asset-backed securities, end by next June.
Given the uncertainty surrounding omicron (although it does appear to manifest mild symptoms in the vaccinated) and inflation not appearing to be quite as out of control as some would suggest, there is plenty of leeway for the Fed to adopt a wait-and-see approach before ratcheting up its tapering process.
And that could provide the catalyst for a spike in bitcoin and cryptocurrency prices to round off the year.
Although equities rose in response to CPI data which suggested that prices increased 6.8% last month from a year ago, bitcoin hardly budged, with those watching bitcoin charts scratching their heads as in past sessions gains bitcoin would gain on inflation data.
But correlations are not static in the cryptocurrency space, and as much as many investors would like to believe that bitcoin is an effective hedge against inflation, the data is still too immature to come to that conclusion unequivocally.
Instead, and what is more likely, bitcoin and cryptocurrencies continue to act as risk assets and if nothing else, are more likely to be helped along by a dovish Fed than runaway inflation.
Which is why CPI data which treads a middle course may be a blessing in disguise for bitcoin bulls because if the Fed doesn’t accelerate its tapering measures (there appears to be less reason to do so as a predictable stable course is preferred), bitcoin and cryptocurrencies may see a delayed rally soon after the Fed’s policy meeting.
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