Monthly Asset Class Review

  • The SPX was down on the month, but the Nasdaq wasn’t.  The industrials bore the brunt of the fall, with the Dow down over 4% for the month.
  • ETH beat BTC this month.  But the rest of the big cryptos took a beating.
  • Despite Biden’s inflationary policies, government bonds rose on safety concerns.  Investment-grade corporates and high yield fell a bit, but much less than expected.

Happy Thursday!

One more day to go.

It’s time for a special midweek asset class review.

Last month’s rallies are a thing of the past.

Omicron, our newest variant, may sound like a Transformer, but it beat up the markets at the end of last week.

November was Great for Tech, USD, and Ether.

Commodities, however,  were down 8%. 

Tech stocks rallied nicely this month, but let’s face it: the FAANGs rule the indices.

With the dollar rally in full swing – I can’t believe I just wrote that – commodities got crushed.  

Gold and silver continue to bore everyone but the craziest gold bugs, but it’s a snoozefest to me.

Government bonds rallied on the omicron variant spooking the markets.  But IG and junk bonds were off a bit.  Their charts look vulnerable, though a sell-off is by no means imminent.

So we’re pretty much following the playbook.

Bonds lead equities in the same direction, along with the dollar, while commodities move down.

It’s textbook stuff in an inflationary environment.

Now, let’s look at the charts, shall we?

The S&P 500

Government covidiocy will have a big impact going into year-end.  The dollar rally is another big story.  I don’t think equities control their own destiny anymore.  Much depends on the dollar, rates, and The Fed.

Will Powell still taper after the “omicron” story?  That is the question.

Nasdaq 100

The inflation story is real but took a backseat to the virus story.  This isn’t over yet, but the Nasdaq weathered November better than the Dow, which was down over 4% for the month.

Russell 2000 (Small caps)

Before the second week of November, this chart was a technical dream.  After a full 10 months of moving sideways and consolidating, the IWM broke to the upside.  Alas, it wasn’t meant to last.

Thanks to the bad news, the small caps got whacked.  If the IWM falls below the 208-205 shaded box, there can be a world of hurt and trouble in store for small-cap investors.

The US 10-Year Yield

Since no one can predict interest rates, here’s what I’ll say.  Until there’s either a move above 1.70% or below 1.2%, there’s nothing you can do.

Everything in the middle is noise.

Dollar Index

We’ve finally had a move, though it’s not the one I had anticipated for a long time.  The USD has rallied hard thanks to the Fed signaling a tapering of bond purchases and then interest rate hikes.

It broke through the 95.0 and continued straight up until getting turned back at 97.0.  Currently sitting at the 96 level, the safe wager would be for the dollar to continue this rally to at least 98.25ish.

I’d still have a bullish bent on at that level, but from there, it’s wait and see.

USG Bonds

As I put this chart together, I noticed the slight similarity to the USD (above) and decided to replicate the Fibonacci retracement.

Interestingly, TLT has been bouncing around the 148 level for about 5 months now.  I think – against all my better judgment – that it can rally to at least 154.  From there, 159.

This, in the face of generationally high inflation.  Clown World, indeed.

Investment Grade Bonds

Lower highs and lower lows.  Not indicative of bullish sentiment.

At least one place in the fixed income markets makes sense.

High Yield Bonds

I zoomed out on this chart because we’ve had 3 down months in a row. That’s the first time it has happened since the COVID crash in 2020.

If you go further back to 2016, this may be the template for this time around.

Top of a cycle, Fed was looking to hike rates.  History doesn’t repeat, of course, but it rhymes.

Real Estate

Ok, we saw a bit of a sell-off last month after breaking through the previous all-time high.  That must’ve rankled the algos!

It’s not panic stations by any means.  (I still think US real estate will benefit from Biden’s insanely inflationary policies.)  But this is worth watching.  Below 101, there’s a lot of room to fall.

Base Metals: Copper

Dr. Copper is unsure of the economy.  That’s my read on this chart.

After a big rally in September, it fell right back down in October.

It did nothing, really, in November.  Wait and see.

Precious Metals: Gold

The Great Gold Yawnfest continues.

Frustrating as hell.

Precious Metals: Silver

After a great October, the money of merchants fell right back down.

Should’ve expected it.

Not as dull as gold, but close.

Cryptos: Bitcoin

After ending October at $62,200, BTC went on to top its previous all-time high.  It hit $68,521 on November 5th.  Remember, remember.

Now we’re at about $57,000, which is fine.  Up or down from here?  Below $53,000, look out below.  Anything above is a blessing.

Cryptos: Ether

Now, this is a chart every crypto investor will love.  ETH is rocking it, and it looks to break $5,000 shortly.  From there, the sky’s the limit.

Trad Asset Class Summary

This month, the USD Index led the way.  The long bond followed closely.  The dollar’s gains crushed commodities.  The Omicron scare at the end of the month pushed equities into the red.

Equities Sector Summary

Crypto Class Summary

Ether won the month, again falling less than the rest.  Dogecoin, Litecoin, Bitcoin Cash, and Ripple each lost over a fifth of their values.  Bitcoin got hit hard, but like Monero, it didn’t breach the -20% threshold.

Wrap Up

Congrats!  You’ve made it to the end.

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

As omicron replaced inflation as the front page news, we saw commodities take a hit.

Tech stocks put off their demise for another month.

If Ethereum is your crypto of choice, congrats.  It’s looking solid.  But I expect the others to make up ground in December.

I leave you with this, which is more important than ever.

 

All the best,

Sean 

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