Monthly Asset Class Review

Here’s your monthly review for September.  Unlike August, we had a bit of unwelcome excitement this past month.

Please send all questions, comments, and issues to asksean@paradigm.press, as I’d love to hear from you.

Here we go…

  • The SPX took a breather, falling 4.79%.
  • The Nasdaq got smashed, dropping 5.62%.
  • Real estate and crypto followed them on the way down.

September was a reckoning for risk-on.

Finally, there’s been some relief in the large-cap equities space, along with cryptos (not great) and real estate.

I get the equities sell-off, but the crypto and the real estate?  Shouldn’t these asset classes increase with inflation fears?

It may be a point of “sell what you can, not what you want,” as the old adage says.

Tech stocks especially don’t react well with inflation, historically speaking.  And that seems to be holding up now.

Another conundrum we face is the rising US ten-year yield with a USD that may be hitting a huge resistance level.

One or the other will give.  From a price perspective, we’d prefer to see the yield fall and the USD along with it.

But from a non-clown world view, we need to get rates back to normal sooner or later.

If Jay Powell and his merry band of Fed Governors won’t do it, perhaps the Bond Vigilantes will awake from their long slumber to enforce the law of the markets once again.

My money is on more money printing, however.  They just love a bit of CTRL+P in the old Eccles Building.

Let’s get to the charts, then.

The S&P 500

The SPX finally had a down month.  It’s the first since I’ve started writing this monthly asset class review.

Looking at the chart, you can see it needed a healthy breather.  But about 5% got lopped off, so investors are a bit jittery.  I suspect Powell and crew will print money if the sell-off gets out of hand.

I don’t see that happening.  But with the Demented Dunce in the White House, you never know.

The Nasdaq 100

Finally!  Something makes sense.

Inflation and tech stocks don’t mix well, so the Nazzie took a beating last month.  While it’s below its 50-day moving average, the Nazzie has to fall another 2,500 points for me to think this could be the end.

My money is on a swift recovery.

The Russell 2000 (Small Caps)

The Russell’s chart looks markedly different from the large caps’ charts.  After a furious rally from 4Q 2020 to Q1 2021, the small caps have been in a sideways snooze.

Until the IWM falls below $200, I’d not worry about any big sell-off here.  Above $235, it’s a screaming buy.

The US 10-Year Yield

Could be big!

The 10Y spiked last month to 1.52%.  Still too low for my taste, we need a bigger rally to get back to normal yields.

Alas, I don’t think that’s happening.  With the money printing going on, this may just be a temporary blip.  If Powell tapers bond buying while simultaneously raising rates, the situation could get out of control.

The Dollar Index

I replicated this chart from JC Parets over at AllStarCharts.com.  He uses the Fibonacci levels for the Dollar Index.  You can see that the 94.80-95.00 area is essential.  Twice rallies have failed at that level, and now we’re trying for a third time.

If the 10Y rally continues, it’s a good bet the DX will get above 95.  Again, I think it’s unlikely as TPTB will hit the print button as soon as they see trouble.

Government Bonds

Things started so well for the TLT in September, and then it all fell apart last week.

I still haven’t figured out why anyone would want to hold bonds during an inflationary period, so at least this last move makes sense.

I look for further weakness down to at least 132.

Investment Grade Corporate Bonds

Investment grade corporate bonds also got dinged last week, but in context, the move looks minuscule.

I’d want to see a move below 125 before I become a believer in the sell-off.  For now, expect some sideways movement.

High Yield/Junk Bonds

Another bond class, another small move down.

Junk bond yields aren’t even covering inflation right now.  It’s a hugely risky asset class with no risk premium.

Jim Grant used to call USTs “return-free risk.”  I think that applies to junk now, as well.

Real Estate

The real estate sector took a hit as well.  Again, I think this is “sell what you can” mode, rather than studious thinking.

If inflation is not “transitory” and is sticking around, then you want to own real estate.

This will almost certainly be a temporary move.

Base Metals: Copper

Now, this is concerning.  The Good Doctor Copper looks like it’s in a prolonged downtrend.

As copper is a great leading indicator of the real economy, this is bad news.  And as you usually exit a triangle formation in the direction you enter it, it’s a good bet that copper falls below $3.95.

After that, it’s a pretty steep drop, depending on how bad the economy gets.

Precious Metals: Gold

My goodness, I loathe gold right now.  There’s nothing redeeming about it at the moment.

It doesn’t protect again inflation, transitory or otherwise.  It doesn’t rally when it’s supposed to.

It’s a big snoozefest, circling the drain of investor patience.  Pass.

Precious Metals: Silver

Silver is another one I just can’t stand.

After rallying hard after the Covid drop, silver has slivered sideways for over a year now.  And it’s threatening to fall below $21.50, a big level.

If it does, look out below.

Cryptos: Bitcoin

BTC had a big whopper of a sell-off, to the tune of -10.26%.  But it was the best performing of the big coins in September, which says something about its “stickiness.”

Still not near any danger levels, it looks to rally back to $50,000 any day now.

Cryptos: Ether

Ether took a bath in September, falling 21.63%.  It’s already rallied the first few days of October, though, along with its big brother.

I’m still very bullish on ETH, though the chart is a bit of a mixed bag.  Let’s see what it does in October. 

Traditional Asset Class Summary

Boy, was it a rough month for the US equity indices.  The Nasdaq took the biggest wallop, followed closely by the SPX.  

Crypto Class Summary

Bitcoin led the way this month, down only 10.26%.  Litecoin and Monero join the podium with less than 20% losses.  Dogecoin was the biggest loser in this group, falling over 30%.

Wrap Up

Congrats!  You’ve made it to the end.

Thank you once again for coming on this brief journey.

As the inflation numbers gather steam, I’m bullish on real estate and cryptos.  Large caps may continue to get hurt by the increased labor costs.

Small caps haven’t done much lately, so its next moves will dictate the story.

I’m particularly bearish on bonds, though the darn things don’t want to come down yet.  Junk bonds won’t until Jay Powell and his Magic Money Printer calm down a bit.

I’m also curious to see which big money manager hits the sell button first.  Once that happens, they better hope the rest of the industry follows them to oblivion, or they’ll be going alone.

And remember:

Have a lovely month ahead!

All the best,

Sean

You May Also Be Interested In:

August Stock Bloodbath?

According to data going back to 1928, August is the worst year of the month for the stock market. Today, we explore the data behind this ominous month. And we share some advice on how to keep your portfolio safe until the heat burns off and the fall brings a more prosperous market.

Sean Ring

Around the World in 22 Years with Sean Ring

Okay, let's take it from the top.

Joisey!

For something I did in a past life, I was born in New Jersey. I haven’t figured out what that was yet. Joking aside, I loved growing up in Hasbrouck Heights. It was a fun town.

I was...

View More By Sean Ring