The Signal: Contraindicated

The Market Signal

It is critical to know how other investors are positioned. After all, assets are only worth what someone else is willing to pay for them. If everyone is fully invested and optimistic, it may be more difficult for asset prices to rise quickly. It works the other way, too. If market participants are waiting on the sideline with cash out of fear, there is potential for heavy buying – a coiled spring, so to speak. 

Last week, the American Association of Individual Investors (AAII) survey registered a pessimistic reading that flirted with multi-year lows. That in hand, it may not be surprising to see the degree to which risk assets rallied this week as the spring releases. 

An overhang on the optimism still remains. Wednesday’s surge in oil prices sent stocks lower – especially those that are geared to economic growth, like financials, industrials and technology. But with energy prices easing Thursday, the optimism was back. In fact, a new reading from AAII on Thursday showed a surge in optimism, to a point where both bulls and bears are now almost equally represented.

Bull Run

To put a finer point on where we stand on fear, look at the ratio of gold to Bitcoin. Over the past month, Bitcoin has surged 15%. Compare that with the gold ETF (GLD), up just 2% – and down from a gain of as much as 7% earlier in March when the market was on edge. Fear is abating, and there are signs investors may be starting to put money back to work. 

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The Data Signal

Inflation Begone

It’s not just Bitcoin benefiting from the decline in pessimism. Whereas inflation fears depressed nearly all stocks in early 2022, some, like General Mills, are going on the offensive. 

The consumer goods giant, responsible for countless items in your grocery store, from cereal to desserts to vegetables, soared with their financial results this week, pointing to the ability to pass inflation on to their consumers. They are not unique. Looking through history, equities have traditionally outperformed inflation rates by multiples given their pricing power.

Was There a signal?

Going beyond Bitcoin to altcoins, optimism also prevailed. Solana (SOL) and Cardano (ADA) soared after being added to a new Grayscale fund that tracks non-Ethereum smart contract technology. Then there's Axie Infinity (AXS), known for its ‘play to earn’ game, which added 20% to its valuation Thursday. In fact, among cryptocurrency categories, the Metaverse, Play to Earn, and Cardano ecosystem were the top performers over the past 24 hours. ADA’s social mentions are tracking positive, while AXS and SOL are neutral, per Domain Money’s Signal** product.

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Above All Else

One key development in crypto stood out however. Legendary investor Katie Haun launched her $1.5 billion investment fund. In her statement, fittingly published on Mirror, a platform built off of decentralized technology,  she pointed to the advent of Web3 as a major focus, with plans to invest in both tokens and projects. Crypto “expanded far beyond financial use cases,” she said, pointing now to gaming, art, media and content as the next frontier.

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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, AXS

** These measurements were generated by Domain Money Social Sentiment Signal on 3/24/2022 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