What’s driving volatility?
The shock factor and human toll of war trivializes all market commentary. Be that as it may, we must chronicle the very real financial cost that impacts portfolios and strategies.
The behavior in crypto, stocks and commodities to Russia’s all-out assault on Ukraine Thursday was as you likely would have expected, with crypto and stocks reeling, and commodities (of which Russia is a huge exporter) soaring.
But almost as a warning to those trying to time the markets, assets rebounded in a “sell the rumor, buy the fact” fashion. The concept describes how a market “prices in” certain developments. In this case, after weeks of selling, the ‘fact’ arrived (in this case, war) and the market weighed the U.S. 's response (sanctions on Russia short of the most severe, but inclusive of asset freezes and banking restrictions).
A reversal higher ensued (dampening of rising interest rate expectations are also a help), penalizing those still selling the war shock. This counterintuitive reaction can often surprise new market onlookers.
One way investors try to avoid this is through ‘buying the dip’, or even dollar cost averaging, which aims to put your investing on ‘auto-pilot’ with regular, recurring investments at set time intervals and set amounts that will purchase more of an asset when prices lower, and less when prices rise. Read more about dollar cost averaging here. You can set up recurring investments in individual assets and Domain strategies via the Domain Money app.
What about the price action?
Bitcoin, at one point Thursday down more than 8%, reversed to trade up 2%. The total stock market ETF, VTI, saw volumes double its 30-day average as it flipped positive from down 3% earlier in the day. Energy prices like natural gas and crude oil soared 5% only to reverse. Ethereum, once off 11%, ended Thursday’s U.S. trading session higher. This trend largely continued Friday, with Bitcoin and ethereum notching double digit gains while energy prices softened. 95 of the top 100 cryptos by market value traded higher.
Sounds like many moving parts, but is there a simple explanation?
Each asset has a reason for its move this week, but in simple terms, what we’ve seen is the entire market’s leanings in 2022 were reversed.
The three worst-performing sectors of 2022 headed into the war, technology, communication services, and consumer cyclical stocks, were the best performing Thursday. Stocks like buy-now-pay-later co. Affirm, off 50% this year, saw double digit gains. Cloudflare, down 31% this year, rebounded 19%. Palantir, down more than 40% in 2022, jumped more than 10%.
There were plenty more examples, like in solar, with big rebounds in Enphase Energy and SunRun. In cybersecurity (given the Russia threat), CrowdStrike and Palo Alto Networks recorded double digit gains after seeing steep selloffs in early 2022.
Any crypto-related impacts?
A similar dynamic played out in other sectors, like in financials. Upstart Holdings and SoFi Technologies, down more than 30% heading into Thursday, were in the top-ten best performing financial stocks with market capitalizations over $2 billion.
Bitcoin-exposed financials like Marathon Digital and Silvergate Capital jumped 9% after logging declines in excess of 30% on the year.
Beyond the macro picture, crypto-exposed stocks Coinbase and Block (formerly Square) reported quarterly financial results this week to add to the confusion around share price movements. A simple takeaway: trading and transaction growth through 2021-end in crypto was alive and well, with both detailing a minimum of double digit growth in transactions and trading. Signal** shows positive social sentiment in both over the past day.
You can view key indicators in the app in the asset detail screen by selecting an asset from the home feed.
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** These measurements were generated by Domain Money Social Sentiment Signal on 2/25/2022 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
* 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: ETH, BTC, CRWD, COIN