Financial Markets
This week the S&P500 and the NASDAQ 100 dropped 9.1% and 9.8%, respectively. The small cap index (Russel 2000) was down by 9.5%. Trading volumes were above average especially on Thursday and Friday (after President Trump announced the new tariffs).
The price action on precious metals was mixed... Gold dropped only 1.5% but silver tumbled 13.3%. Silver has a considerable industrial use, as does copper - both saw a big selloff this week, which signals that the market is expecting an industrial slowdown.
WTI also fell considerably (9.7%) due to lower demand fears - it now sits at 62$/bbl. If it continues falling, the next support levels are at 58$ and 54$.
Bitcoin was essentially unchanged for the week (+0.27%). This was a positive surprise because Bitcoin is usually considered a risk asset and it should have sold off together with the stock market! It is probably too soon for a Bitcoin selloff as retail investors are not panicking or in the need for liquidity - yet. The key resistance and support levels on Bitcoin, for the short term, are 92k$ and 72-74k$, respectively.
The relative strength of the US dollar (DXY) closed the week at 102.8 but momentarily fell down to ~101 during the week. The EUR/USD is around 1.096$, the GBP/USD is at 1.290$, and the USD/JPY is at 146.93 JPY.
US M2 money supply at the date of 24th February 2025 was up by 0.5%, showing a slow increase after being unchanged in January. If the money supply was going down, it would be a warning sign for the economy and equities.
The national financial conditions index (NFCI) for the week of 24th March 2025 loosened by 0.81%, a positive sign in a less bearish week. Note that this indicator is delayed by a week.
US bond yields fell considerably last week, and now sit at 3.644% for the 2-year and 4.000% for the 10-year. These are below the current FED funds rate, showing that investor expectations favor a decrease in interest rates and lower inflation.
The VIX closed the week at ~45, a healthy unseen since last august (temporary spike) and, before that, February 2020!!! Panic is in the air! Investors are more fearful and trying to protect themselves from the market correction. Option sellers need to be strategic and try to sell their put options when the premiums are the highest and the risk of assignment the lowest (typically after a price fall, close to a support level). Although risk premium is reasonable, the overall systemic risk in the stock market and overall uncertainty about the US economy is correspondingly high. Don't sell puts unless you are really comfortable buying the underlying asset (cash-secured puts)!
Comment Section
The US equity markets reacted violently to the tariff announcement on Wednesday after the market closed. Money moved from stocks to US bonds. The NASDAQ entered a bear market as stocks slumped over 10% in two days.
Tariffs are a tool that should increase US leverage during negotiations with other countries. However, the full plan of the US administration is not evident yet, and short-term pain seems inevitable.
One thing is for sure: the FED will cut rates more than two times in 2025! As we said last week, we can expect central banks all around the world to lower interest rates in lockstep, to try to avoid a global recession and compensate for the Trump tariffs.
This is the time to be conservative with your liquidity. Prices will probably drop some more! When asset prices become truly cheap, buy them!
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