Mati Greenspan, Senior Market Analyst at FX broker eToro, has provided his daily commentary on traditional and crypto markets for December 4, 2018. Highlights include:
- Bond Yields Indicate Pending Recession: The 3-year and 5-year bond yields inverted for the first time in a decade. While not as strong of a recession indicator of the 2-year and 10-year inversion, historically the 3-5 year inversion is an early indicator of recession.
- With BTC, ‘Death Spiral’ Theory Misses the Mark: Contrary to the “death spiral” theory which claims the end of bitcoin is near, bitcoin mining becomes easier as miners drop out. This incentivizes other miners to continue operations.
- How to Trade Assets in a Volatile Market: In a blog post, Mati explains Dollar Cost Averaging, or spreading out orders in order to take advantage of markets that are low but could go lower, increases the chances of increasing investment success.
- FAANG Stocks Jostle for Top Spot: Facebook, Apple, Amazon, Netflix and Google are all significantly down from all-time highs and competing for the largest market cap.
After weeks of uncertainty in the stock markets and a relief rally yesterday, investors now have fresh cause for concern.
It seems the US bond markets are flashing fresh warning signs that the economy is about to take a turn for the worse.
When the yields of the 10-year bonds go lower than the yield on the 2-year, it has in the past been a strong indicator that a recession is coming. Well, that hasn’t quite happened yet, but we did get an inversion yesterday of the 3-year and the 5-year for the first time in a decade.
Though the 3-5 spread is not as strong an indicator as the 2-10, it’s still not a very good sign. In this graph, we can see that even though a 3-5 inversion doesn’t always lead to an immediate recession, it can still be considered as an early indicator.
This should come as no surprise to those who are reading these updates regularly. As we’ve been saying, just about every stock mogul and their brother have been predicting that we’re nearing the end of the bull cycle.
In the crypto market, we’ve seen a fair amount jostling for position among the top three assets by market cap.
It seems a similar dynamic is now playing out in the stock market as Apple, Amazon, and Microsoft are in a close running for the top spot.
This chart from the Financial Times shows the respective market caps of the top four tech stocks…
The FAANG stocks have all come down significantly from their all-time highs, with some falling harder than others.
Perhaps this is not surprising as many of these companies were previously priced for perfection, but the question now becomes at what point do they bottom out?