As we anticipated last week, market movements were pronounced after the Fed meeting and CPI readings. The FOMC seemed confident in its plan – and market pricing is currently in line with it – of two additional 50 basis point hikes, with the potential to revert to smaller increases in September. However, CPI data overshot expectations, which increased market turmoil towards the end of the week as investors kept looking for direction in the tug of war between inflation and a potential recession. In addition, there was chaos in the crypto market, with a well-known stablecoin exchange balking amidst investor redemptions.
In the meantime, the US remains a relatively safe haven for capital fleeing riskier geographies – such as Europe and Asia. Dollar demand has recently increased and is projected to remain strong until market uncertainty subsides.
Ask the American consumer…
Investors looking for clues about the economy will be scrutinizing Tuesday’s April retail sales, which are expected to shed some light on consumer confidence. Consumption has been surprisingly resilient in the past readings despite inflation, supply-chain woes and a war in Europe, but consumers appear to have increased credit spending. According to data from the Federal Reserve, revolving consumer credit growth—mostly reflecting outstanding credit card balances—accelerated to a +42% annualized rate to $31 billion, raising sustainability questions going forward.
Industrial production data – a leading indicator of economic activity – will also be released on Tuesday. The industrial production index (IPI) measures levels of production and capacity in the manufacturing, mining, electric, and gas industries, relative to a base year. A strong reading may point to lower odds of a recession.
Invest in Art Today
Finally, the end of the week will be focused on housing numbers – housing starts on Wednesday and home sales on Thursday. Needless to say, the housing market is a bedrock – and a bellwether – of the US economy, and has been recently rocked by a decisive increase in mortgage rates that has decreased affordability.
No end in sight
With the United States Congress greenlighting an additional $40 billion in aid for Ukraine – which includes, but is not limited to, defense spending – Russian victory prospects appear to be fading. The war has entered a new phase, and neither party is for now incentivized to come to the negotiating table in earnest. While some friction emerged between the US and its European allies – more concerned about the price of energy and a higher risk of being directly involved in the confrontation – the Western alliance is still unequivocally supporting Ukraine.
However, as hostilities protract, the negative geopolitical climate is likely to continue to increase equity risk premia, beyond what would be expected given the deteriorating macroeconomic conditions.
The equity market and crypto selloffs, while triggered by fundamental factors such as the increase in interest rates that put a dent on growth stocks and made margin positions unsustainable, were likely to have been exacerbated by retail investors being overly concentrated in some key assets – tech stocks being a telling example. This behavior was likely to have been partly fueled by platforms that market assets without giving investors the tools to make informed investment decisions. While liquidity – i.e. the capacity to sell a position at any given time – can give some peace of mind, it is helpful to remember that panic selling can lead to substantial losses, and create additional market turmoil.
Yieldstreet continues to believe in the importance of offering investors professionally vetted opportunities within the private market space. This past week, amidst continued market volatility, we launched Art Equity Fund IV, which includes an iconic work from late New York artist Jean-Michel Basquiat.
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