The Signal: Bottom's Up

The Market Signal

One shouldn’t read too much into the day-to-day behaviors of the market. It’s usually safer to “set and forget” your recurring investments. But when you look around, there seem to be signs that the market may have bottomed. 

Though Monday’s market action reflected continued concerns around rising commodity prices due to the Russia conflict (metal and fertilizer stocks Intrepid Potash, Mosaic, Century Aluminum and Alcoa soared), broader optimism appeared Tuesday. Stocks and cryptos rose, building on last week, when the S&P 500 registered its biggest weekly gain since the November 2020 Presidential election.

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Billions in Market Cap

The rally even included beaten-down technology stocks. In the past week, graphics chip giant Nvidia gained 25%, while Amazon, Meta Platforms and Tesla tacked on double-digit gains. This may signal the worst may be over in terms of news flow.  Reports of Russian forces retreating may also be a key part of Tuesday’s optimism, but the conflict is likely far from over. 

The extent of the performance in crypto is also notable. Crypto markets regained the $2 trillion market cap threshold, while Ethereum nears 1-month highs. 

Of note was the Ethereum/Bitcoin ratio, Andrew Pesco, Head of Investment Management at Domain Money highlighted. The ratio of Ethereum to Bitcoin is now at the highest in over a month, likely due to two reasons. First, a risk reversal. This means that since Ethereum sold off more than Bitcoin at the onset of the Ukraine conflict, it should recover faster as odds of a resolution rise. Second, Ethereum is nearing its much-awaited move to a proof-of-stake consensus mechanism. Last week, the protocol completed the final test before it can migrate to the new process, now expected in June or July, Pesco added. Ethereum’s social sentiment tilts positive, according to Domain Money’s Signal** product. 

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The Data Signal

Adopt a Crypto

We often talk about crypto adoption as a critical data point. As more individuals and institutions participate, prices tend to respond. There has been no shortage of new developments. 

Nike is the most recent. After reporting strong quarterly earnings Monday, management touted its branded NFT, which launched in the quarter. It was their “first step” into digital product creation, and executives were “pleased” by what they saw as positive momentum in the sector. 

NFT developments weren’t limited to the sneaker giant. Last week, Meta Platforms’ CEO Zuckerberg confirmed that its Instagram unit planned to support NFTs.

Old Guard Is New Guard?

In the more traditional finance arena, also last week, Paypal CEO Schulman didn’t mince words in an interview, noting that "cryptocurrencies will redefine the financial world going forward.” And to start this week,  reports surfaced that Goldman Sachs executed a transaction with Galaxy Digital that many saw as opening the door to more institutional involvement. By taking on risk, Goldman was seen as helping to facilitate institutional exposure to crypto. 

Why does this matter? Signs of maturity are critical to nascent financial markets. Many participants steeped in crypto history point to the May 2020 interview legendary hedge fund manager Paul Tudor Jones II gave, in which he proudly touted his allocation to bitcoin –among the first in traditional finance. The cryptocurrency rose 4x since.

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* Domain Money Advisors, LLC, an investment advisor registered with the U.S. Securities and Exchange Commission and an affiliate of Domain Money, is currently recommending the following assets contained in this edition of Domain Money’s The Signal as part of Managed Strategies: BTC, ETH, NVDA, AMZN, FB, PYPL

** These measurements were generated by Domain Money Social Sentiment Signal on 3/22/2022 and they fluctuate continuously in response to the various contributing data points and trends. Domain Money Signals are tools that aggregate information related to market sentiment and should not be relied on for investment decisions.  More detailed information about Domain Money Signal is available at https://help.domainmoney.com/en/?q=signal