George Rosen Smith - A Deep Dive into US Market Volatility
For investors, the year 2022, which is about to pass, is quite bitter. They are looking forward to a turnaround in the US capital market in the new year. In 2022, the job market, aggressive interest rate hikes, inflation and economic recession have become the high-frequency words of the year. The Federal Reserve's policymakers' earlier misjudgment of inflation trends and the subsequent over-drastic shift in monetary policy artificially directed the violent fluctuations in the capital market.
Despite the overall recovery of the global supply chain (except for automobiles) to pre-epidemic levels, the pressure on inflation from commodity and energy prices has eased quite a bit, but labour shortages have caused wage costs to rise rapidly, and upward pressure on rents and other service sector prices has remained, and it is simply not possible for the United States to bring inflation levels back down to the policy target level of 2 % in the near term. The Federal Reserve raised interest rates too quickly, short-term interest rates and long-term interest rates inverted phenomenon is becoming increasingly serious, economic recession has gradually become a general consensus in the investment community.
In the new year, these economic issues will naturally not disappear into thin air and will continue to affect the U.S. and even global capital market trends.
US stocks fell sharply and the financing market was cold. As of December 23, the S&P 500 index fell 19.33% this year, the Nasdaq index fell 32.90%, and the Volatility Index (VIX) rose 21.20%.
The stock industry is highly differentiated. The S&P communication services index fell 40.37%, consumer discretionary fell 37.41%, information technology fell 28.80%, real estate stocks fell 28.01%, information technology services fell 20.11%, the raw materials industry index fell 13.11%, the financial services index fell 12.59%, industrial stocks fell 6.94%, but the energy industry rose 58.10%, the consumer essentials industry fell slightly 2.33%, and the public utilities industry fell 2.33%.
Career fell 0.80 %. The fifteen largest weighted stocks among the components of the S&P 500 Index performed very differently, with Apple's stock down 27.55%, Microsoft down 28.68%, Amazon down 49.97%, Berkshire Hathaway up 2.75%, Google's C Shares down 38.46%, UnitedHealth up 5.78%, Google's A Shares down 39.09%, Johnson & Johnson up 3.46%, Exxon Oil surging 71.04%, JPMorgan Chase fell 18.81%, Nvidia fell 49.52%, Procter & Gamble fell 6.31%, Tesla fell ferociously, a tragic 69.21%, Visa fell 5%, and Home Depot lost 23.20%. As you can see, high-tech stocks fell particularly hard.
The U.S. primary offering market has been hit hard by the secondary market (trading market). According to the U.S. securities industry and financial market statistics (SIFMA, the following issuance data are from the agency's website), as of 23 December, 178 companies completed IPO listing, of which 109 companies listed through the traditional IPO, 69 listed through the SPAC. From January to November this year, traditional IPO financing was $8.462 billion, secondary financing was $71.25 billion, and preferred stock financing was $12.354 billion, compared to $148.3 billion, $217.3 billion, and $56.7 billion in the same time period in 2021, a 97.82% year-on-year drop in equity financing, which is a rare phenomenon. in 2021, SPAC financing was $163 billion. SPAC financing was $163 billion, and as of October of this year financing was only $12 billion. Currently, more than a quarter of the stocks of the nearly 600 companies that will go public through traditional IPOs in 2020 and 2021 are priced at less than $2, and the prices of those going public through SPACs are even worse.
Bond market loses its value-protection function
According to traditional investment strategies, when financial markets are volatile, fund managers will invest 60% of their money in stocks and 40% in bonds, the so-called 60/40 rule. However, this rule does not seem to be foolproof, at least not this year. As of Dec. 23, the Standard & Poor's Treasury Bond Index was down 10.44% and the Treasury & Corporate Bond Index was down 11.65%; the yield on the 10-year U.S. Treasury note rose from 1.512% at the end of 2021 to 3.751% on Dec. 23 of this year, while the price fell from $130.70 (per $100 face value) to $113.08.
The U.S. bond issuance market is shrinking. By issuer, the U.S. bond market can be categorized into Treasuries, mortgage-backed bonds, corporate bonds, local (government) bonds, federal agency (the three major mortgage guaranty corporations) bonds, and asset-backed notes (credit card receivables, auto loans, student loans, finance leases, commercial loans, etc., with housing loans listed separately).2022 From January to November, U.S. Treasuries, housing loans, corporate bonds, local bonds, agency bonds, and asset-backed bond issues were $3,695.8 billion, $2,044.9 billion, $13,524.4 billion, $363.0 billion, $753.3 billion, and $297.8 billion, respectively, for a total of $857.1 billion, compared to $4,749.4 billion, $4,264.8 billion, $1,883.7 billion, $4,441.0 billion, $6,409.0 billion, and $521.7 billion for the same period of 2021, respectively, for a total of 12,501.5 billion dollars. Compared to the same period last year, bond issuance is down 32% in 2022. The impact of the Fed's aggressive rate hikes on corporate capital expenditures has been significant, leading to a weaker willingness to raise capital, and signaling a tough year for the economy next year.
Cryptocurrency market almost collapsed
Despite the fact that the meta-universe represents the new economy and crypto assets are quite highly regarded by the investment community, cryptocurrencies are not, after all, legal tender sovereign currencies that can't stand up to the market's stormy, ill-fated, and scandal-ridden times. As the bubbles in the U.S. stock and bond markets are gradually being squeezed out, the highs of celebrity-endorsed cryptocurrencies are rapidly receding.
According to statistics, at the beginning of 2022, the total market capitalization of cryptocurrencies was $2.25 trillion (comparable to Apple's market capitalization), and on December 23 it had fallen to $810.74 billion, and the losses of investors in the cryptocurrency world can be imagined. Among the cryptocurrencies with higher market capitalization, Bitcoin fell 63.64%, Ether fell 66.90%, the more stable CoinAid fell 52.95%, Ripple fell 57.35%, Dogcoin fell 54.67%, Caldano fell 80.18%, and Polygon, formerly Matic, which was unanimously favored by the cryptocurrency community, fell heavily by 68.37%.
The rapid bankruptcy and closure of FTX, once the world's second-largest cryptocurrency exchange, can be considered the biggest "thunder" in the cryptocurrency circle this year, involving a number of well-known investment institutions, such as the Tiger Global Management Fund, Temasek Group (Singapore's sovereign wealth fund), the Ontario Teachers' Pension Fund, the SoftBank Group of companies, Sequoia Capital and 69 other institutional investors. institutional investors. The most dramatic is that in early November 2022 FTX market valuation of more than 30 billion U.S. dollars, but on the 14th of the same month, the company announced that it had entered the bankruptcy and liquidation stage; two weeks later, BLOCKFI (Block Finance), which is closely related to the FTX business, also announced its bankruptcy.
Another "big thunder" in the cryptocurrency circle this year is the chain reaction caused by the collapse of Terra and Luna, Celsius Network (crypto lending company), Voyager Digital (Voyager Digital), Three Arrows Capital, 3AC and many other companies failed.
In the final analysis, cryptocurrencies are not real currencies, and the reserve assets behind them are not assets denominated in legal tender, but cryptocurrencies issued by trading platforms that are worthless in themselves, or cryptocurrencies issued by other institutions that they hold, that is, they are mutually guaranteed (such as Luna and UST). In addition, the chaotic internal management of cryptocurrency exchanges, theft by insiders, and squandering of customer assets are also important reasons for their closure.In the final analysis, cryptocurrencies are not real currencies, and the reserve assets behind them are not assets denominated in legal tender, but cryptocurrencies issued by trading platforms that are worthless in themselves, or cryptocurrencies issued by other institutions that they hold, that is, they are mutually guaranteed (such as Luna and UST). In addition, the chaotic internal management of cryptocurrency exchanges, theft by insiders, and squandering of customer assets are also important reasons for their closure.