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NOVEMBER 23, 2023

MARKET CLOSED

Due to the Thanksgiving holiday, the stock market is closed today.

ROLLERCOASTER BEHAVIOR

This week, we have witnessed a volatile behaviour in the crypto market as although there were declines following the confirmation of the $4.3 billion fine and the guilty plea by Binance’s founder and CEO, Changpeng “CZ” Zhao, who also agreed to step away from the company, the markets have shown signs of recovery since then, with bitcoin now up above $37,000. Moreover, the broader CoinDesk Market Index (CMI) has also shown positive movement, with a 2% increase over the past day. This growth is highlighted by a 5% gain for ether (ETH), and 6% advances for other cryptocurrencies like Solana (SOL) and Chainlink (LINK). Settling down from the headlines, some observers have suggested that the Binance settlement may pave the way for the U.S. Securities and Exchange Commission (SEC) to finally greenlight a spot bitcoin ETF. They believe that the resolution of the Binance situation could alleviate the agency’s concerns about potential overseas manipulation of bitcoin prices. Reflecting on these developments, economist Alex Kruger remarked, “With this plea deal, the expectations for a spot Bitcoin ETF might have increased to 100% as the industry will be forced to follow the rules that TradFi firms must follow.” Furthermore, Binance’s activities are set to be monitored by an independent compliance monitor moving forward.

HEDGE FUNDS SHAKED UP

The robust performance of the stock market in November has resulted in hedge funds suffering an estimated $43 billion in losses from their bets on declining stock prices. The unforeseen rally has compelled these funds to repurchase stocks, triggering a “short squeeze” that has notably impacted short positions in sectors like technology, healthcare, and consumer discretionary. Moreover, there are several indicators suggesting that the rally in U.S. equities is likely to persist, for example, a Goldman Sachs index tracking short interest and low sector correlations points to a sustained rally, reflecting investor confidence. Additionally, DataTrek Research strategists have pointed to the low correlations between different sectors in the market as a reason to believe that stocks will continue to rise through the end of the year. Low correlations indicate that investors are confident about picking and choosing between different sectors and stocks, reflecting a positive outlook. The strategists believe this trend signals a continued rally in U.S. equities in the near future and further market optimism.

NOT SO GOOD VALUATIONS

During a recent meeting, the economists at the Federal Reserve expressed significant concerns about the high valuations of stocks, houses, and commercial property, highlighting the risk of their values falling. Their remarks underscored a potential fragility in the current market. The fed’s in-house experts pointed out that stock valuations and house prices have reached historical highs, with the forward price-to-earnings ratio for S&P 500 companies rising to the top 25% of its historical distribution, and house prices increasing to the upper end of their historical range. Additionally, commercial-property values seemed excessive, with capitalization rates remaining near historical lows. Higher interest rates, as a result of the Fed’s actions to combat inflation, pose a risk as they could reduce the appeal of risky assets such as stocks and real estate, and increase borrowing costs for companies. Furthermore, the commercial real estate sector is dealing with declining property values, higher interest costs, and a credit crunch as lenders fear defaults, and although there are positive economic indicators such as strong growth and low unemployment, the Fed’s cautious tone indicates that investors should be vigilant about the potential vulnerability of asset prices in the current market environment.

INTERNATIONAL NEWS

European stocks faced difficulty gaining traction, and bonds experienced a decline as activity surveys indicated a looming recession in the euro area, with the purchasing managers’ index by S&P Global registering at 47.1 in November, surpassing the anticipated figure by economists. This marked the sixth consecutive month below the 50-level threshold, indicating an expansion. According to Simon Harvey, head of FX analysis at Monex Europe, it is still premature to be optimistic about the euro and the eurozone economy, which is likely going through a milder recession rather than a phase of re-acceleration. Moreover, in the Stoxx Europe 600 index, Dutch firms saw a significant decline amid far-right lawmaker Geert Wilders’s unexpected victory in the country’s elections, promising voters a binding referendum on leaving the European Union. This result had repercussions, as lender ING Groep NV dipped as much as 3% in Amsterdam, and chipmaker ASML Holding NV lost 1.1%. Conversely, Swedish stocks surged, and the krona weakened following a surprising decision by the country’s central bank to leave its main benchmark rate unchanged at 4%, contrary to analysts’ expectations of an increase to 4.25%. Furthermore, Peter van der Welle, a multi-asset strategist at Robeco Institutional Asset Management, expressed caution regarding the outlook for stocks in 2024 due to the expected impact on corporate earnings amid slowing economic growth.

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