Monday, June 20th, 2022 – Volume 2 – Issue 245

Dow Jones: 29,888 (-9.40%)*

S&P 500: 3,674 (-11.07%)*

Nasdaq: 10,798 (-10.62%)*

Russell 2000: 1,665 (-10.64%)*

Bitcoin: $20,066 (-36.86%)*

Ethereum: $1,102 (-43.18%)*

*month-to-date prices shown above

The stock market is closed today in observance of Juneteenth… But for those invested in crypto, there are no days off from wild price action.

Bitcoin plummeted below $18,000 on Saturday night, but the crypto market was able to recover big-time shortly thereafter as BTC tries to hold the $20K level.

As for the stock market, keep reading for 3 things to keep an eye on this week.

Now, for the top stories of the day…

3 Things to Watch this Week

It’s a shortened trading week! So you know what that means… markets (stocks) can’t go down today! What a relief. But on a serious note, here are some things you need to look out for this week.

1. Powell Testimony

JPowell is set to testify before Congress this week on Wednesday and Thursday to talk about the Fed’s plan to control record-high inflation. On Friday, the Fed reiterated its commitment to fight inflation is “unconditional.” This follows last week’s 75 basis point hike and the potential for more aggressive tightening ahead.

Powell reiterated that the Fed can’t control many of the factors causing inflation — like the Russia-Ukraine war — but is still doing what it can, where it can. This has caused worries on Wall Street that more aggressive rate hikes will push the economy into recession, adding further pressure on equities.

2. U.S. Economic Data

There isn’t much economic data set to come out this week, but updates on the health of the US housing sector will take the main stage. On Tuesday, existing-home sales are expected to show a slowdown in May as rising mortgage rates dampen activity. New home sales will be reported on Friday, with investors hoping for a bounce following April’s 16.6% plunge.

The initial jobless claims report is due out on Thursday following last week’s report pointing to a slowing in the labor market. Manufacturing and service sector data will also be released on Thursday.

3. Increased Volatility

As always, with the stock market closed Monday, it will be a shortened trading week, meaning traders will have to cram 5 days of trading volume into 4. With FUD continuing to increase following a massive sell-off last week, one might want to spend today mentally preparing.

“Right now you are going to see a lot of volatility and it is primarily going to be because of the fact the Fed is going to be front-end loading all these rates hikes and just trying to gauge the inflation picture and it is very clouded right now,” Megan Horneman, director of portfolio strategy at Verdence Capital Advisors in Hunt Valley, Maryland told Reuters.

“Just expect volatility, it is here to stay, it is going to be here until we get a little bit more clarity on have we really reached peak inflation.”

Wall Street Heavy-Weights Back the Fed

The first half of 2022 has been a disaster for equities, but JPMorgan believes equity pressure will ease in the second half. The firm also believes that inflation pressure will also begin to ease in the latter half of this year as well. 

In the Fed We Trust: The JPMorgan strategists making the call, led by Mislac Matejka, believe the Fed hawkishness was delayed but isn’t “broken” for the second half. While the Fed’s dot plot still suggests aggressive hikes ahead, “if the Fed were to start delivering on expectations, rather than surprising on the upside, that could go a long way in stabilizing market sentiment,” the strategists said.

The firm reiterated its recommendation to add Chinese exposure as they remain overweight on emerging markets compared to developing markets. The firm is neutral on US equities and overweight UK and Euro stocks. 

Agree to Disagree: JPMorgan isn’t alone in its assessment of the Fed’s action, as BlackRock’s CIO Rick Rieder has faith in the central bank as well. “I think the Fed is right,” he said. “If you think about where monetary conditions are today? We’re still at easy conditions. By the end of the year, we’ve got to start to get to neutral.

“In a note to clients, Rieder pointed to unusual supply conditions, like the Russia-Ukraine war, making it more difficult for the Fed to tame inflation. Unfortunately, BlackRock sees a worsening market outlook in 2022. 

“You have to get to neutral before you go in either direction,” Rieder said, using an analogy of driving a vehicle and suggesting that the Fed hiking interest rates aggressively is the correct way to get to neutral. “You don’t want to put the emergency brake on — meaning you want to gradually do it. You want to tap on the brakes. I think [the Fed was] too slow in doing that. Now they’re moving, and I think they’re doing the right thing.”

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Why Crypto Might Collapse... Again

There’s a lot going on in the crypto market right now.

On Saturday night, BTC fell below $18,000 for the first time since late 2020, and investors have lost a record $7.3 billion over the past few days, according to Glassnode analytics. Ouch.

The Rally: Some relief came as buyers came swooping into the market, though, and BTC is now trading around the $20K level. Chart analysis suggests strong support at $18K and strong resistance at $23K.

Forced Selling: Liquidations have been a significant driver of the market’s fall, with bitcoin futures racking up $436 million worth of liquidations over the past 3 days.

The Staked Ether Problem: Staked ether (stETH) is trading at an 8% discount to actual ETH. While this may seem like an ‘easy money’ arbitrage opportunity, crypto firms like Celsius and Three Arrows Capital have tons of exposure to staked ETH — and investors are worried that those firms, and potentially a number of others, are on their way to bankruptcy.

  • Celsius has more than $400 million in staked ETH deposits, leading to fears that the company will have to sell its stETH to stay solvent.

  • The problem is that selling staked ETH is not as simple as it seems… Ethereum only accounts for 20% of the liquidity pool that allows investors to swap stETH for real ETH, meaning there isn’t enough liquidity to fully exit a staked ETH position without big-time pressure on the market.

But there is hope… This weekend’s bottom for bitcoin came as 49% of the cryptocurrency’s supply was ‘in profit’ — meaning holders of half of BTC tokens weren’t yet underwater. Historically, “bear markets have bottomed and consolidated with between 40% and 50% of supply in profit,” said Glassnode.

Quote of the Day: “The time is always right to do what is right.” – Martin Luther King Jr

Fun Fact: The oldest person ever to have lived (whose age could be authenticated), a French woman named Jeanne Louise Calment, was 122 years old when she died in 1997.