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📈 Stock market is fractured

May 13, 2021 Sign up
TOGETHER WITH Finny

Good day. US inflation figures climbed 4.2% for the year ended in April—a 61% jump from March CPI figures. Can you guess which one of these things saw the highest price increase last month? a. carrots, b. used cars & trucks, c. cotton t-shirts. See the answer in the trending section below.

Here are the topics we cover today:

  • Is the market fractured?
  • What’s up with companies buying Bitcoin?
  • Outlook on travel for the rest of 2021

INVESTING

Is the market fractured?

By Hedgeye

It’s certainly been a weird 14 months for investors. We entered last March with a looming pandemic casting a shadow over the market's short-term future, ultimately leading to some impending panic that quickly rebounded in a vivacious manner. 

For the rest of the year, we saw continuous highs throughout the remaining months before reaching a market euphoria of sorts in Q4 of 2020. Thousands of new investors piled into the markets, the gains were abundant, and stocks that perhaps shouldn’t even be publicly traded companies went to the moon.

A reality check

This trend continued until February 2021 when it hit a wall composed of short-sellers, bearish analysts, and hedge funds. Since then, new investors have faced a harsh reality check and may have actually fractured the market in the process.

But what exactly do we mean when we say fractured? The market is divided, it’s idiosyncratic, it’s...split, broken.

The proof is in the numbers

In the immediate last 3 months through yesterday's close, the DJIA gained nearly 7% and the S&P 500 over 3%. The Nasdaq though? It's lost about 8%. And the Russell 2000, the US small-cap stock market index, is also down nearly 7%. 

If we compare this to the prior 3 months, the Russell 2000 gained about 30% while the Nasdaq added about 16%. During that same time, the Dow Jones also added a solid 10%—a respectable return for a 3-month period considering the large average market cap of its underlying companies. The S&P also added about 13%, another big move.

A correction and a divergence 

Basically, the entire market, including small-cap companies, were moving in unison until they weren't by February 2021.

It’s undeniable that the growth sector was due for a correction after the show it put on in late 2020, early 2021. A 30% return for an entire index within a few months is abnormal and obviously, not sustainable. 

Now though, the waters are choppy. And the more speculative, growth-oriented sectors of the market have trended negative, halted by short-sellers and skepticism, while the Dow Jones and S&P 500 continue to churn right through the gains. 

CRYPTOCURRENCY

What’s up with companies buying Bitcoin?

Wasn’t the whole point of Bitcoin to create a decentralized medium of exchange so that we could forego the bureaucracy and centralized nature of traditional intermediaries? Well, apparently the bureaucrats themselves have decided they like the idea as well, and now companies are buying in too. 

Tesla, MicroStrategy, and Square—to name a few big names—are all among the growing list of businesses that see the value in holding Bitcoin. These 3 companies alone gobbled up a whole $3.9 billion of the crypto giant and they’re not alone. Grayscale, Galaxy Digital, Ruffer Investments, and tens of other smaller, yet still noteworthy businesses are now stackin’ Sats.

There’s value for everyone

Different companies are buying for different reasons, but they also see value in the asset in one way or another. Crypto-centric businesses such as Galaxy and Grayscale have built their entire businesses around the idea of crypto so it's good to see them cook what they eat, but the fact of the matter is that it’s not just the specialists buying in.

When Tesla and Square are electing to add some Bitcoin to their treasuries, it’s clear they see a profitable incentive to hold some of their liquidity in crypto as opposed to cash. And Tesla recently sold some of their holdings for a reason Musk called “proving its liquidity” even though we all know they just wanted to reap the capital gains, and rightfully so.

Inflation, ROI & the future of Bitcoin

We’re not a cryptocurrency disciple here at Finny, so it should be understood that the future of Bitcoin is unknown, and its value is subjective to each individual investor. Bitcoin could become forgotten in 50 years, or it could become the largest alternative asset class in the world. No one knows. 

Regardless of the future, investing is about doing your due diligence, understanding what you own, and making an educated decision. The educated outlook on Bitcoin is that, well, it could’ve made investors a lot of money by now, and probably has plenty of potential left to continue doing so. 

Businesses see this as they're also concerned about their bottom lines. Major corporations and investment firms have entire divisions devoted to managing their assets, and so economics and return on investment is a top priority. They’re buying Bitcoin not only because it presents a potential hedge against inflation, but also because of the upside of substantial gains.

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TRAVEL

Outlook on travel in 2021

El Nido, Philippines

During the summer of 2020, travel prices hit insanely low levels as the volume of Americans seeking adventure hit an all-time low. Between cruise lines having to pause trips entirely, cumbersome precautions and travel restrictions, fear of contracting the virus, and even unemployment in some cases, travel was just not something on our minds. 

In 2021 we should be and have been seeing a rise in the demand for travel and all its underlying amenities. These things cost money of course, and so with that means rising prices. It’s still possible though to find good deals. Here are some things to watch for:

  • Airlines may not be able to meet demand. Travel by air decreased by an astonishing 95% in April of 2020 vs. 2019. Airlines parked airplanes, laid off staff members, and drastically cut back to reduce their costs and prolong their runway time. Because of this, prices are expected to rise about 4-5% per month leading up to the summer months, all subject to real demand of course. What does this mean for you? Booking early will be paramount, and you'll get a much better deal by planning your trips at least 6 weeks ahead.
  • Hotel prices will be slower to adjust. Not all travel is for pleasure, and so although the number of leisurely trips being taken will likely return to more normal levels this year, business travel is still significantly diminished thanks to the remote work reality. Because of that, prices for hotel rooms may be slower to pick up.
  • Bundling and credit card points, still in style. Bundling your trip expenses is still an excellent way to save money on your vacation. Bundle your needs and put them on your favorite credit card that rewards you for your travels. Then of course immediately pay it off!

ASHU'S CORPORATE COLOR

Today's Movers & Shakers

  • Tech stocks are seeing some rebound. Apple (+2%) and Qualcomm (+1%). Energy names are slipping — Marathon (-4%), Exxon (-1%), and ConocoPhillips (-2%)
  • Sonos is up (+1%) after reporting an unexpected profit (the street expected a loss)
  • Alibaba missed on earnings but exceeded revenues 
  • Casper is down (-4%) even though it reported a smaller than expected loss
  • Boeing received FAA approval for the electrical system fix for the beleaguered 737 Max
  • Bumble is down (-17%) despite reporting a profit (street expected a loss), higher than projected revenues, and positive guidance

This commentary is as of 1:30 pm EDT.

✨ TRENDING ON FINNY & BEYOND

  • ANSWER. Used cars & trucks saw a 10% price increase in April and a 21% increase since April 2020. Here are the 3 things that saw the highest price increases last month (Yahoo!)
  • Stocks keep falling, led by tech (WSJ)
  • The cheapest travel destinations in the world in 2021 (Be My Travel Muse)
  • How to handle emotional ups and downs at work (Medium)
  • Finny lesson of the day. Need to brush up on what inflation is? Here's our 6-min quiz-based lesson:

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses!  It's sent twice a week (Tues & Thurs). The editorial team: Austin Payne and Chihee Kim. Thanks to Ashu Singh for Today's Movers & Shakers.

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