Monthly Asset Class Report

  • Equities got destroyed in January.  Tech, especially, got taken to the woodshed.
  • Commodities scored a big month, but not metals nor crypto.
  • Real estate fell, surprisingly, for me, at least.

Happy Hump Day!

Sorry I’m a day late, but I really felt the need to talk about Gerry Baker’s piece in the Journal on Monday.

Joke Biden is increasingly looking like the one-legged man in the ass-kicking contest.  And Jay Powell reminds me of the obstinate old uncle who says, “A man’s gotta do what a man’s gotta do.”

Winston Churchill was said to have once quipped that “Americans will always do the right thing, after all other possibilities have been exhausted.”

Apparently, Churchill didn’t actually say it, but he should have.

Jay Powell is on his way to that fate, putting off raising rates far too long, just as his predecessors did.

And like “The Ben Bernanke,” he’ll probably raise too much, too soon, and tank the market in the process.

With that said, bonds fell on the hawkish policy stance.  But real estate came off its highs pretty hard.  I don’t know why, to be frank.

Cryptocurrencies had another ugly month, with most big names down over 20%.  BTC didn’t stabilize, and ETH looks like it’ll trend down further before another sustained rally.

And while commodities overall had a big month, copper, gold, and silver continued their yawnfests.

Gold and silver are still hanging out in their ranges, doing nothing much.

Let’s get to the charts…

S&P 500

What I wrote last month: “A big Christmas rally sent the SPX up to all-time highs.  This certainly isn’t bearish.  Right now, I can’t think of a reason to be bearish, other than the Fed’s decision-making.  As long as Powell doesn’t rock the boat, expect this rally to continue.”

Well, he rocked the boat.  Jay Powell did nothing to calm the markets.  He’s intent on raising rates, and I think the market believes him.

Nasdaq 100

What was that about tech stocks not liking inflation? The NDX takes a walloping. Unlike the SPX, it didn’t regain its 200-day moving average, which means the algos still have it in their sights. February is a big month.

Russell 2000 (Small caps)

Yes, we are off the map now.  The small caps got hammered this month, and it’s likely this rally is over.  The Russell retested the 50-day MA early in the month and was firmly rejected.

Now, not only is the index trading below both the 50 and 200-day MAs, but the 50-day turned below the 200-day MA.  Next stop: $160 or so.  (That’s another 20% down.)

The US 10-Year Yield

We also got our breakout in the ten-year yield.  Now that we’re above 1.70%, the sky is the limit.  If the market is that far ahead of the Fed, I’m unsure what Jay Powell can do to stop the rally.

Dollar Index

Ok, I’ve updated JC Paret’s 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 we’d be off to the races, but we traded back down immediately to 96.54.

My best guess is that we’ll 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

Oddly, the TLT got crushed this month, which makes me feel better.  Back down to 132, methinks.  Update when we get there…

Investment Grade Bonds

What I wrote last month still holds, except the breather part.  LQD got hosed this month.

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

This month, though, IG bonds took a breather.  I’m still bearish and expect them to fall off further in the coming months.

High Yield Bonds

Well, after I got whipsawed last month, we resumed the selloff in junk.  $81 is the high before the Covid selloff in 2020.  If we approach that number, there can be big trouble.

Real Estate

I must put my hand up.  I got this one totally wrong, for reasons that completely escape me.  Maybe it was too much too soon.  But now, we’ve bounced off that 101 level and perhaps will make another run.  I just don’t see real estate getting hurt with inflation climbing like it is.

Base Metals: Copper

Same old, same old.  Dr. Copper is rangebound, unsure what to make of this economic mess.  Again.

Precious Metals: Gold

After a rally, back down we go.  Yawn.

Precious Metals: Silver

Another yawnfest.  Many analysts are calling for a massive silver rally.  I think they should stop smoking the hopium.

Cryptos: Bitcoin

Got this one wrong, as well.  But the bleeding may stop this month.  I had written that $47,000 might hold.  It clearly didn’t.  I think we’ll see $30,000 before a sustained rally at least.  But the kids are still long.  It’s the over-leveraged wealthy boomers who may have to sell it to cover margin loans that I worry about.

Cryptos: Ether

I wrote last month:

As ETH failed to break above its ATH on the last rally, it seems to have fallen into a downtrend.

I’m still a huge ETH bull, but right now, it doesn’t look like we’re going to see a big rally anytime soon.

Yup.  In fact, ETH got hammered in January, but a nice little rally lately gives one hope.

But I still don’t think a sustained rally is imminent.  We can easily see $1,800 before we head back up. 

Trad Asset Class Summary

Investors dunked on the SPX this month, with it finishing down 5.86%.  As one would expect during these nutty inflationary times, commodities rallied hard, nearly up double digits.  The USD was slightly up against its most significant trading partners, while bond prices fell.

Bond yields and prices have an inverse relationship.  With inflation rising and the market expecting a rate hike, this is normal behavior.

Crypto Class Summary

While Monero won the “Prettiest Girl in the Ugly Contest” last month, it’s January’s biggest loser.  All the cryptos had faces like beaten favorites, so awful were their respective performances.

We may be seeing a bottom, but I think we’ve got more to go on the downside.

Wrap Up

Thanks again for your time.

I hope you found the charts informative.

As January was such a horrible month, it doesn’t bode well for the rest of 2022.

But we’ll see if Powell and the Fed stay the hawkish course, or if Biden puts pressure on him to relax his stance before the midterms.

Either way, strap yourself in.

I’ll leave you with this:

All the best,

Sean 

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