The Market In Five Charts (No. 4 is Insane)

market charts

Market momentum is Red. The markets are closed today, but remember that cash is your best friend heading into the short week. Asian markets had a difficult start to the week, while Europe experienced a nice gain after last week’s decline. 

With the market closed today, I want to take a step back and look at the state of the market. The furious selloff that has transpired over the last few months shouldn’t surprise anyone who has been reading Haven Investment Letter

I wish I had better news. I don’t like being bearish about the markets and your money, but we have a perfect storm. I’ve looked across the universe of financial crises, and there are plenty of comparisons to the 2008 recession, the 2020 COVID crash, the 2018 Fed-induced selloff, and even the 1937 depression. 

But plenty of data shows that this asset collapse is unprecedented. Buying opportunities will come… but we have to be patient. Today, I want to show you several charts illustrating this market’s realities. Let’s dive in.

Market History in the Making

The Dow Jones has declined in 11 of the last 12 weeks. That’s never happened before.

We have effectively wiped out all gains since the beginning of 2021. 

And with that decline… the most common portfolio strategy – 60% stocks and 40% bonds – is getting smoked this year. The drawdown of that 60-40 portfolio is comparable to the drops we witnessed in 2009 and 2020.

Now that drawdown is nothing when you look at the world of costly stocks that trade at outrageous multiples. The best example of this is witnessed in the Ark Innovation Fund (ARKK) holdings. This popular ETF experienced dramatic gains since the Federal Reserve began pouring trillions into the markets… and Congress poured trillions more in fiscal stimulus.

But the party is over for this ETF. Cathie Wood’s technology-centered fund is now off 77% since its February 2021 peak. The exchange-traded fund (ETF) hit $156.58 on February 8, 2021. 

Today, that ETF trades at $38.80. And it likely has a way to go.

The Bond Markets Look Worse

While the stock market continues to break down – and overvalued equities continue their descent – the bond markets aren’t faring any better. The financial returns of bonds have been dismal. And there’s no comparison historically to this decline that we’re witnessing. 

Corporate bonds and junk bonds could continue to slump as the Federal Reserve kicks off its Quantitative Tightening program this month and accelerates its selling over the next few months. 

And that brings us to our final chart…

This is the amount of U.S. treasury holdings owned by the Chinese government. This is important because the Chinese government has been selling assets ahead of the Federal Reserve. 

The U.S. central bank will sell about $47.5 billion in bonds and mortgage-backed securities this month. The number will ramp up to $95 billion in September, setting the stage for great volatility in the bond and equity markets.

The U.S. can’t rely on other nations to help stop the bleeding, especially as they face their own fights against inflation. China isn’t the only nation poised to continue selling U.S.-based assets.

A report I picked up over the weekend showed that the Swiss National Bank could start selling off U.S. stocks in the months ahead to provide more stabilization for the nation’s currency. The nation owns roughly $177 billion in FAANG stocks and might start unloading them in the coming months to boost its liquidity. 

In Conclusion

These are the types of factors that can continue weighing against the stock market. It’s another reason I’m following my momentum readings and staying in cash when the market goes sideways. 

Tomorrow, we’ll talk about how to handle that cash. You don’t want your money just sitting in a savings account getting less than 0.1% interest. There’s a better way. We aim to remain liquid and look for buying opportunities when the dust settles. It feels like we’re only in the third inning of this selloff. 

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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