7th May – 13th May 2022 | Another week in the markets
|S&P 500||Nasdaq||VIX||DJIA||Russell 1000||NYSE|
|Nifty 50||Gold||Silver||Brent crude||USD-INR||EUR-INR|
This week, major currencies saw a significant drop against the US dollar, the crypto market was in for a shock, and the stock market continued to decline. For a trading week that ended on Friday the 13th, this might just seem fitting.
- INR, GBP, and other currencies take a hit as the US dollar reaches a 20-year high
- Stablecoin TerraUSD falls to 23 cents shaking the crypto market
- Elon Musk puts Twitter deal on hold until he receives data on spam accounts
- Apple is no longer the world’s most valuable company, Saudi Aramco is
- More than 60% of the world’s advanced economies are currently plagued by inflation
Taking stock | Ri$e | Unstablecoin | #WaitForIt | A for Aramco | Macro problems | Invest wisely
After another down week full of chaos and volatility, stocks ended higher on Friday trimming losses. The S&P, which has been close to tumbling into the bear market, rose 2.39%, the Dow climbed by 466.36 points, and the Nasdaq Composite saw its largest one-day percentage gain since November 2020 and jumped by 3.82%. Despite Friday’s gains, all these major indices ended the week with losses.
Amidst fears of economic slowdown, rising interest rates, China’s lockdowns, sanctions on Russia, and rising commodity prices, the US dollar climbed further to a 20-year high on Thursday. The dollar has always had a safe-haven appeal among investors, and the US dollar index – an index that tracks the value of the US dollar against six other major currencies – has risen 8% since the start of the year. According to Barclays, the dollar index could rise another 2% to 3%. The dollar strengthening comes at a cost for the global economy as other major currencies, from the British pound and the Swiss franc to currencies of developing countries like India, take a hit. The rupee dipped to a record low on Thursday for the second time this week at 77.63. The Japanese yen, which has fallen against the dollar by 13% since 2022 began, is at its 20-year low. On Thursday, the euro dropped by over 1% against the dollar, seeing its biggest one-day drop since March 2020.
TerraUSD, a stablecoin launched in 2020, crashed this week losing investors billions of dollars, driving down the price of other cryptocurrencies like bitcoin, and raising questions about the viability of cryptocurrency as a new form of finance. Stablecoins like TerraUSD are pegged to a government-backed currency or a commodity and aim to offer investors a less volatile alternative in the cryptocurrency market. For the most part, TerraUSD had maintained its value at $1 per coin since its launch. But this week, it plummeted more than one third on Monday and fell to as low as 23 cents on Wednesday.
Until this happened, stablecoins used to be popular in a crypto market marked by turmoil and seismic price volatility. But this crash is not just worrisome for cryptocurrencies. Since stablecoins are pegged to traditional assets, the Federal Reserve believes that stablecoin vulnerability could spill over to the traditional financial system. This is because in the case of an investor run on the stablecoin, the underlying asset that it is pegged to would be impacted.
On Friday morning, Musk tweeted that his $44 billion deal to buy Twitter is temporarily on hold until he receives more information on the number of fake accounts on Twitter. A few weeks earlier, the social media platform had estimated that for the first quarter of the year, the fake or spam accounts accounted for less than 5% of Twitter’s monetisable daily active users. Now, Musk, who had earlier expressed that one of his main priorities with Twitter will be removing spam bots, demands evidence supporting this calculation. Immediately after this announcement, Twitter’s stock plunged by 18% in premarket trading.
A for Aramco
On Wednesday, Saudi Aramco, a Saudi Arabian oil company, overtook Apple as the world’s most valuable company. Apple’s stock prices kept surging throughout the pandemic, and earlier this year, it became the first $3 trillion company. However, this could not be sustained in the face of inflation and higher interest rates that are making tech stocks less attractive.
Apple’s stock is down by nearly 10% so far this month and about 20% since the year started. At the same time, soaring oil prices have buoyed Saudi Aramco’s market capitalisation by a quarter this year, hitting $2.43 trillion on Wednesday. The fact that Saudi Aramco’s market cap rallied from $1.90 trillion at the start of the year to $2.43 trillion while Apple’s market cap fell to $2.37 trillion shows the recent tech industry weakness and energy strength.
This week, the Consumer Price Index (CPI) data for April renewed earlier apprehensions about aggressive measures from the Federal Reserve to curb inflation. While inflation simmered down from March’s peak, it still exceeded estimates and was up 8.3% from a year earlier. The core CPI that excludes food and energy was 6.2%, also higher than expected. But the US is not alone; inflation is plaguing most developed countries around the globe, including the UK and the Eurozone. About 60% of the advanced economies are currently seeing an annual inflation rate of over 5%.
With continued stock market volatility, cryptocurrencies crashing, gold prices dipping, and currencies depreciating, no one asset class or investment instrument is a safe bet. But to stop investing is the last thing you should consider, as inflation rates are at an all-time high. So if you just let your money sit, you are letting its value erode rapidly. The smart thing to do right now is to diversify your investments and build a portfolio prepared to hedge multiple risks. One way to do this is by dollar cost averaging into high-performing US stocks and ETFs, which you can access easily by downloading the Appreciate App.
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