From the Fed to Europe’s currency crisis, here’s what’s behind this selloff in financial markets (6 min read)
The global stock markets sold off on Friday as a result of the Fed’s recent rate hike and other central banks in the world raising their rates to combat inflation as well. The S&P 500 was down another 1.7% and the Dow reached a new low for the year. The European markets were down about 2% for the day. The proposed tax cuts and incentives from the UK government also added more negative spiral. The Fed and other central banks had already signaled higher interest rates would come. As recession warnings are on the rise globally, it brings out the emotion phase of a bear market.
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British pound plunges, bonds sink after government announces tax cuts (3 min read)
The British pound fell 3.5% against the dollar after the UK government announced a new economic plan to help boost growth. The new economic plan includes a mix of tax cuts and incentives for businesses. The market reacted with the UK bonds selling off over the concern of rising government debts. Experts believe that it will be increasingly difficult for the UK government to finance this fiscal giveaway amid economic deterioration. The pound has been falling against the dollar this year and at one point reached a level not seen since 1985.
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Credit Suisse Shares Sink To Record Low Over Revamp Reports (1 min read)
Shares of Credit Suisse dropped to a record low after reports of massive revamp. There were rumors that Credit Suisse is planning to exit the US market. The bank had rejected those claims and said any reporting that suggested otherwise were false. There were also rumors they are looking to raise capital, but Credit Suisse refused to comment. Credit Suisse has run into a lot of problems in recent years, including its involvement with Archegos Capital and Greensill Capital, both of which collapsed, and regulatory difficulties as well.
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Bank ETFs: Value Play or Value Trap? (2 min read)
The largest bank ETF was down 7% in the past month due to rising rates worries. In terms of P/E, the banking sector is still looking more attractive than the S&P 500. The risk is that if rates continue to increase aggressively, it will significantly affect the bank's business. Banks borrow money on short-term rates and lend it out on long-term rates. If the rates continue to go up, the long-term rates will be extremely lower than the short-term rates. This will cause trouble for banks with activities likely to shrink and demand for loans to drop. However, the valuation is still very cheap, any signs of improvement on this risk will likely have banks bounce back sharply.
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Hedge funds dashed to exit energy positions last week - data (2 min read)
Hedge funds around the world have exited their positions in energy stocks just in time to miss the recent oil price plummet. They typically trade based on market trends and exiting their position means there is a lack of any trend in energy. Oil prices jumped 3% after Putin announced the escalation of the invasion in Ukraine but dropped 4% the next day on news that oil supplies had risen in the US. As of Friday, oil prices hit their lowest since January as recession fear spread in world markets. Some hedge fund managers said the momentum that fueled the upward rise in oil, gas, and other energy products is gone.
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The Most Important Retirement Table You'll Ever See (2 min read)
Becoming a millionaire or multi millionaire may seem unachievable to some but it is possible through diligent and consistent saving and investing. This article shows a table that demonstrates the power of compounding through regular investing. It includes the scenario for investing $5,000, $10,000, and $15,000 annually over the time of 5 to 40 years and assumes the growth rate at 8%. You can become a millionaire from only investing $5,000 a year and can be much more in less time if it was a larger sum. Compounding starts off small but gets massive over time. The sooner you start, the more wealth you can accumulate in the later years. The average returns will vary based on the investments but the average annual returns of the S&P 500 is 10%, which makes it reasonable this table uses 8% returns as assumption.
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That's it for today! You can reply to this email if you have any comments or feedback.
Thanks,
Thomas
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