I attended an investment event this week, when I finished check-in and walked into the meeting room, I studently found that I was the only one masked among a large group of maskless attendees. At the moment I removed my mask I just realized that Covid is not in the picture as much anymore. Instead, Russia is brutally frontal assaulting in Ukraine became main factor that is whipsawing markets, in the backdrop of Jerome Powell signaled that he is inclined to propose a 25-basis point rate increase at the March meeting. War is brutal, but the studies show that the stock market volatility was actually not as high as we expected during periods of war.
As the market has been in correction for two months while investors feel a year alike, compared to the Nasdaq’s 16% of decline (as of 03/04), the S&P 500 only dropped 10% from its peak in which energy sector rose 27% for the past three month as opposite to many growth stocks that have downed more than 30%. However, the current economic recovery from the pandemic that is challenged by the surged oil and agricultural products price possibly able to trigger a recession. In other words, if we take out the energy and basic material sectors, the rest of market might have been in a bear market while we just don’t realize it.
Since China is the largest oil and agricultural importer in the world. its slowdown economy is expected to get negatively affected by the rising price, although The People’s Bank of China (PBOC) has cut interest rates and pumped cash into the financial system to lower borrowing costs, along with more easing steps expected. China’s power to boost global economy is fading. Hopefully, as one of major growth engines of the world, China will relax its zero Covid grip soon to spur a rebound its economy to improve the imbalance of global supply chain, otherwise, the inflation could stay higher and longer than we expected.
Conversely, The S&P 500 rebounding on Feb 24 did not change the dark picture a lot as the index fell back underneath its short-term MA again in a lower lows downward trend. technically, it’s quite difficult to change the current negative pattern soon as there are at least 6 resistances need to breakout before the market find a real bottom.
Our Long-term investment portfolio downed 12.71% for the February along with 64.51% of total return since the inception of May 2020 (click for our latest portfolio performance report). while our Dynamic investment portfolio declined 7.75% for the February while shrunk its total return to 28.10% since May 2020. additionally, our crypto portfolio which allocates with 50% of BTC and 50% of ETH got a -4.93% of total return since the launched date (03/31/2021). Meanwhile, our structured notes portfolio had a -8.5% of total return since 03/31/2021, but different from other portfolio, the loss/gain for the structured notes is based on current market value of its underlining assets. The actual notes’ return will be reflected by its underlying assets’ value on its maturity date, since the most of notes in this portfolio mature in 3-5 years as well as each of those come with different terms (duration, buffer/barriers, and the final value of underlining assets), the market volatilities would have less impacts on its actual return until the last day. Since high market volatility to continue, we created some hedge positions by developing more protective structured notes to our investment portfolio, one that we just launched on March 4 was an income note that invested on Ford Motor (F), Freeport-McMoRan (FCX), Tesla (TSLA) and Apple (AAPL) would generate 22.4% annual return and distribute the income quarterly, if the worst performer among these four companies does not decline more than 35% from the entry point, meanwhile the investment principal will be protected as well as the worst performer does not drop more than 40% from the buying point.
The large price volatility in recent days seems to be more driven by market speculation based on the news flow related to Russian invasion of Ukraine, rather than changes in actual demand and supply. But the war has caused significant swings in commodity prices which will exert upward pressure on inflation in the coming months. As the Nasdaq moved to the bear market, the question is what kind of bear it will be as a standard bear typically decline of 20-25%, Wall Street seemingly confused, but time will tell.
Sen Zhang
Managing Partner