Monthly Asset Class Review: October

Welcome to your new week!

It’s time to see what happened last month in the markets.

Here’s your monthly review for October.  Unlike September, we had a bit of unexpected rallying this past month.

October was great for large caps, real estate, and crypto.

Equity market bulls never cease to amazing me.  Somehow, equity investors always think growth rates will exceed inflationary pressures created by the very government that’s trying to tax them into oblivion.

To wit, the Nasdaq was up over 6% in October, erasing September’s losses and hitting an all-time high.  This, in the middle of the greatest inflation crisis since the 1970s when the former “worst president ever” was in office.

Congrats, Joe Biden, you’ve exceeded my wildest expectations on that front.

Naturally, commodities and real estate were also up on the money printing moving through our system, despite – or maybe in aid of – supply chain issues.

Then, of course, we’ve got cryptos, which were brought into existence by a nerd or nerds who were sick and tired of insane monetary policy and reckless fiscal policy.

Both ETH and BTC hit all-time highs, though BTC pulled back a bit.

In inflationary times, it’s helpful to remember John J. Murphy’s intermarket guidelines:

    1. Stocks and bonds move together.
    2. Bonds lead stocks.
    3. Bonds and commodities move in opposite directions.
    4. The USD and commodities move in opposite directions.

For the most part, that’s held true.  Let’s see how, in the charts…

The S&P 500

Last month, I wrote:

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.

Of course, the Fed would never let it get to that point, so we’re off to new all-time highs.  Though I’m hearing increasing calls that a bigger sell-off will happen later this year from smart money.  But we got through October with flying colors, so I think that’s unlikely. 

The Nasdaq 100

Just when things were making sense, Clown World reasserted itself.  Inflation is up – way up – and tech stocks have hit new all-time highs.

That’s just the way we roll nowadays.

Russell 2000 (Small caps)

Nothing’s really changed since last month.  IWM was only up 2.60% last month.  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

After another jump to 1.67%, the 10-year yield fell back down to 1.55%, roughly where it was last month.

I can’t see the Fed letting it get too much higher right now.  Not until TBTP are happy to let the whole edifice come tumbling down.  Doubtful.

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 important.  Twice rallies have failed at that level, and now we’re trying for a third time.

I wrote the above last month, and we’ve seen a sell-off, followed by a sharp rally right at the end of the month.  No signals have been lit yet, but this is a must-watch for all asset classes.

USG Bonds

Bonds in a highly inflationary period go up.

This is why I throw my hands in the air.  Last month, I thought we’d retest the 132 lows.  We’re at 147 currently.

Above 152, and we’re off.  Below 142, then maybe we’ll get to that 132 call.

Investment Grade Bonds

Up and down, up and down.

IG corporate bonds are currently rangebound, as the market decides what to do with the USD and USTs.

High Yield Bonds

Junk bonds are as flat as a pancake over October.  Nothing doing here.  Nothing to report.

Real Estate

After last month’s rather disconcerting sell-off, real estate recovered those losses this month.  This move mirrors what’s going on in large-cap equities.

With that said, if rates stay low, I expect a further rally in real estate – especially in the USA.

Base Metals: Copper

An interesting month for Dr. Copper, to say the least.

I thought The Good Doctor was surely heading down below $3.95 soon.  Then copper rallied furiously for the first three weeks of the month.

Then, all of a sudden, it made a U-turn.  Now we’re nearly back to where we ended September, after it failed to make new highs.  If it gets back inside the triangle look for a fall below $3.95 (again).  If not, watch for a bounce off the trundling and a retest of the $4.80 highs first, then $4.90.

Precious Metals: Gold

It rallied.  All of 1.45%.  Yawn.

Still, nothing to write home about.  Or to write more about.

Precious Metals: Silver

Silver, however, caught a bid, ending the month up 6.27%.

It looks like industrial demand is the reason silver is outshining gold right now.  Silver is used in industrial fabrication, for solar panels, automobiles, and brazing and soldering.

It’s also popular in jewelry, bullion bars and coins, and silverware.

Cryptos: Bitcoin

Should’ve been bolder!  Last month I said BTC will break $50,000 any time now.  And here we are… at $62,200!

BTC finished the month up over 29%.  No surprises there, especially after the rally in large caps and bonds.

From here?  Let’s see if we break the ATHs at $67,000 before we even begin to guess.

Cryptos: Ether

WOOHOO!  ETH hits an all-time high of $4,417.

Fantastic for the ETH bulls out there, who’ve been proved correct.

The sky’s the limit here.  Now it’s a battle between BTC and ETH for crypto-supremacy.  Get the popcorn!

Trad Asset Class Summary

 

NASDAQ led the way, followed by the SPX.  Tech stocks avoid the inflation bugaboo… for this month.

Crypto Class Summary

ETH takes the checkered flag, with a 33.43% gain, followed by BTC, which just edged out DOGE for the second spot. 

Wrap Up

Congrats!  You’ve made it to the end.

Thank you once again for coming on our short monthly sojourn.

As the inflation numbers gather steam, I’m still bullish on crypto, real estate, and commodities.

I think the large-cap equities parade has to end one of these days, especially for tech stocks.

But that’s for the market to decide if it still can without the machinations of the world’s central banks distorting its price mechanism.

All that remains is to congratulate you, crypto pioneers.  After a rough month in September, cryptos bounced back strongly and definitiely.

That’s because crypto investors get what other investors perhaps don’t:

Have a lovely month ahead!

All the best,

Sean 

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