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Posted February 28, 2022

Sean Ring

By Sean Ring

Monthly Asset Class Report

  • Big caps got hammered, small caps did ok.
  • Bonds rallied in February, but this will probably be short-lived.
  • Cryptos had a rough month, but theyve had a great start to March.

Happy Tuesday to you!

Both the SPX and Nazzie fell for February, but the Russell 2000 small caps surprisingly recovered. In the case of the Russell, I imagine that sellers just tired a bit and that selling will resume in March.

Bonds across the board recovered somewhat, perhaps because the markets thought the hiking cycle might be lessened. But it couldve been because the selling pressure had been immense for a while, and the markets required a respite.

After getting crushed in the first part of the month, real estate recovered and is comfortably back in no mans land.

Copper hasnt done much for a year, but gold and silver look like theyre off life support and are rallying nicely.

Ive set some price levels on their charts, lest I get too excited!

Crypto had an ugly February, but March 1st is a treat, as theres been a substantial rally across the crypto board.

I imagine many normies are now looking into crypto, especially Ukrainian, Russian, and Canadian citizens worried about harsh regulation.

One note before we begin, Ive zoomed out on most of the charts to get a bigger picture. So most of them are weekly charts, with 10 and 40-week moving average lines, which correspond to 50 and 200-day moving averages.

With that said, lets get to the charts

S&P 500

Ukraine? I crane! We all crane for a view of the markets while the invasion of Ukraine proceeds. This is a policymaking disaster not only politically, but it throws a wrench in the cogs for Chairman Powell. Will Jay still raise? How many times? Your guess is as good as mine.

But I will say that as a death cross is imminent (50-day moving average moving below the 200-day MA), this market may have already put in its top.

Nasdaq Composite

The Nazzie has already had its death cross. With inflation ramping up, supply chains still clogged, and a war going on, I think were in for an ugly first half of this year.

Russell 2000 (Small caps)

We slightly recovered the small caps last month, much to my surprise. I still think heading to $160 is the likeliest scenario, but it hasnt gone that way yet.

The US 10-Year Yield

I zoomed out a bit on this one for context. That little blue box shows a repudiation of the uptrend, but its only a little one. I expect the trend to resume in line with how hard the Fed goes into the hiking cycle.

Dollar Index

From last month, but it nearly holds word-for-word: Ok, Ive updated JC Parets chart on the USD here. Early in the month, we bounced off that 38% level of 94.80ish and rallied over the 50% line. I thought wed be off to the races, but we traded back down immediately to 96.54.

My best guess is that well dilly dally around this level before rates go up and we take off from here. Next stop: 98.20, with an eye on the all-important psychological level of 100.

USG Bonds

In no mans land right now, but I expect us to head down from here still to 132.

Investment Grade Bonds

Though we had a rally in investment-grade bonds, I expect this to be short-lived. Im looking at the 120 level from here.

High Yield Bonds

We bounced off the 82 level this month. But after zooming out, I think well head down to 77.50. Junk is at significant risk of rising rates and the equities markets getting hit.

Real Estate

It looked for a second like real estate was about to fall out of bed. But then it recovered right back into no mans land. I dont have anything else to add.

Base Metals: Copper

Just a whole bunch of nothing going on here.

Precious Metals: Gold

Getting there, but we really need another $150 rally to get genuinely excited about gold. Still, its better than a poke in the eye.

Precious Metals: Silver

Same story for silver, but if we get above $28.50, thats a super positive sign. (Or negative, depending on what drives us there!)

Cryptos: Bitcoin

That big yellow upstick is actually todays. And thats positive, as February was another tough month for the mother of all cryptocurrencies. Seeing how the SWIFT takedown of the Russian banks goes, it can be a banner month for all things crypto.

Cryptos: Ether

I thought we were heading down to $1,800, and we still could be, but the chart may just turn around. Im still a HODLer on Ether.

Trad Asset Class Summary

After finishing down 5.86% in January, the SPX fell another 3.80% in February. This is now two months in a row where stocks and commodities have moved in opposite directions. From this, we can glean a trend reversal may be coming.

Commodities rallied again, but only about half as much as they did in January. The USD was slightly up against its most significant trading partners, while bond prices fell slightly.

Bond yields and prices have an inverse relationship. With inflation rising and the market expecting a rate hike, this is normal behavior. Though how much the Fed hikes now, thanks to the invasion of Ukraine, is another matter entirely.

Crypto Class Summary

Last month I wrote, We may be seeing a bottom, but I think weve got more to go on the downside.

I wont say the bottom is in yet, but the descent has been steadied for now.

Monero, the most secretive of the big coins, was up on the month.

Wrap Up

Thanks again for reading. Its always a pleasure to see you here.

The Ukraine invasion and subsequent central bank and government actions will weigh heavily on the markets in the months to come.

But lets see if Jay Powell keeps to his old ways

All the best,

Sean

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