Small Caps Rip As Recession Risk Grows; Bonds Bid, Bitcoin Barfed


With central bankers into their blackout windows ahead of the meetings, today was quiet on the macro side with US Leading Indicators the only stand-out, "continuing to signal underlying weakness in the US economy" as they said.

Most notably, they concluded:

"Overall, we expect GDP growth to turn negative in Q2 and Q3 of 2024 but begin to recover late in the year."

And that helped pull rate-cut timing hopes lower, with the odds of a March rate-cut down to just 40% (from practically 100% at their peak in December). Rate-cut expectations for 2024 also declined modestly...

Source: Bloomberg

But, in the face of weak economic data and a bid for bonds, oil rallied notably too - as the reality of Houtthi attacks continues to sink in - with WTI breaking above $75 (out of the YTD range) - back near one-month highs...

Meanwhile, Bitcoin was clubbed like a baby seal, smashing down below $40k. Bitcoin found support at $39,500 and bounced off two-month lows...

Source: CoinGlass

Headlines about FTX selling (over the past couple of days, and apparently having finished), sparked some FUD - but its actually positive since as we tweeted earlier, this means the new ETF inflows are not simply recycled from GBTC...

US equities were mixed with Small Caps soaring on a big squeeze at the open but everything faded back during the day with the rest of the majors clinging on to positive gains. The last hour saw another big reversal smashing Small Caps up 2% on the day (up 3 straight days and the best day since mid-December)... with Nasdaq barely holding green.

The Dow and S&P 500 closed at new record highs...

... as US treasury yields have backed up to 4.15%...

In other words, the year-to-date rally has been propelled by a handful of large-cap stocks whose momentum has rendered them largely immune - for now - to more prosaic concerns.

But for the majority of stocks in the index, bond yields still matter.

During the dotcom bubble, stock traders had the right idea, but had no clue how to price that view. Now they are grappling with much the same issue - only, this time around, substitute dotcom with artificial intelligence. 

The bigger concern is that the gravy train may run as long as it did then.

Source: Bloomberg

The Nasdaq 100 has surged to a record, putting it within striking distance of 17,000, enough to induce vertigo in anyone looking at valuation metrics.

Investors who are buying at current levels may get an earnings yield of some 3.30% - considerably less than the 4.15% that Treasuries offer. In doing so, they are essentially willing to forgo the safety of Treasuries for the promise of growth from technology stocks.

And the S&P is richer than it was at the peak of dot-com bubble...

But suffice to say what Warren Buffett is often fond of saying: “A pin lies in wait for every bubble, and when the two eventually meet, a new wave of investors learns some very old lessons.”

Happy Tuesday!

This information contains unsolicited general information only, without regard to any individual’s investment objectives, financial situation or needs. It is not specific advice for any particular investor or trader. Investment in the stock market involves risk.

This information may not take into account your investment objectives or financial situation, and you should obtain advice based on your own individual circumstances before making an investment decision.

This information is made available to you by ANDIKA Pty Ltd ABN 41 117 403 326, a licensed securities and derivatives dealer (AFSL # 297069).

Great! You’ve successfully signed up.

Welcome back! You've successfully signed in.

You've successfully subscribed to Confidential Daily.

Success! Check your email for magic link to sign-in.

Success! Your billing info has been updated.

Your billing was not updated.