Weekly Market Bites

end of week markets update

Despite some choppiness, this week the S&P 500 had a daily close above 6,000 for the first time in history 🤑 

Bitcoin had another historical week while International equities continue to have a hard time.

Here’s a summary of the moves:

1) The S&P 500 is within reach of having a 30% return this year.

It’s been quite a journey: This week it hit 6,000, earlier this year it broke 5,000 for the first time. During the 2022 bear market, it bottomed out around 3,600. And back in the COVID-19 crash, it dropped as low as 2,500.

How do 30% return years line up with history?

S&P500 Calendar Year Returns since 1928 and +30% Return Years

A little historical perspective: Looking at the chart above, since 1928, the S&P 500 has had 18 years with returns of 30% or more—about one in every five years.

But these gains tend to cluster during strong bull markets like the the 1950s, 1980s, 1990s and 2010s.

So, 30% years aren’t crazy anomalies - they are the icing on the bull market cake.

2) International equities are moving in the opposite direction as US equities:

While the S&P 500, Nasdaq, and Dow Jones are reaching new highs, international developed and emerging markets are erasing their YTD gains.

Up until Q3, international equities were lagging but had solid gains. However, since October, their year-to-date performance is getting worse:

The ishares EFA is up only 4.38%. This ETF is composed of stocks from developed markets ex-U.S., like Japan and Europe (representing green section of the image below).

And, the ishares EEM is a little better with an 8.16% gain YTD. This ETF has stocks from emerging markets, like China, Brazil, India (yellow and red sections of the image below).

Why not just go all-in the S&P500?  

By spreading out investments across different regions, investors avoid the risk of being too concentrated in one place if it hits a rough patch. Think dotcom crash.

Diversification isn’t about getting the best returns - it’s actually going to ensure you underperform compared to whatever region is doing best.

3) The election's outcome has revealed two big truths:

First, Elon Musk is undeniably the most influential businessman alive. No, although yes.

But more importantly: social media has officially displaced traditional media as the thermometer of public opinion. It's become the 21st-century town square. 

And secondly, betting markets are here to stay. Technology, finance, and younger generations are reshaping our most established institutions in a big way. 

4) It’s impossible to close out the week without talking about crypto’s parabolic climb - led by Bitcoin hitting $90,000.

In case your note entirely sure in what part of the market cycle we just entered here are a couple of hints:

Wait, Peanut the what???

Fort those that missed this phenomena - Peanut was a squirrel who had an Instagram account with over 500,000 followers. Then in October, just before the election, he was seized by New York animal authorities and euthanatized - sparking widespread outrage.

Incident which some would say helping Donald Trump win the election 🤣 

charts

Investors putting a lot of money into US corporate debt - pushing down the corporate credit yield spread to a 25-year record low.

Corporate credit yield spread is the extra interest you get for taking on more risk when investing in corporate bonds instead of “risk-free” government bonds.

During tough economic times, spreads tend to get wider as investors get nervous and demand higher returns. While the reverse occurs when times are good - like now.

Such a tight spread is normally a sign that investors are overpaying for bonds, but investors are buying based on the absolute levels of yields - which is higher than it was for most of the last decade.

On Monday, Bitcoin had it’s biggest daily move in history - in absolute terms. Going up by over $8,000.

And finally, some parting wisdom