Bitcoin vs. Risk Appetite
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While each of the indexes generated a positive return in the first trading week of 2023, it’s vital to recognize that Friday’s session generated all of the returns (and then some). Consider the weekly return of each index, prior to Friday’s session:
The Dow Jones $DJX: -0.65%
The S&P 500 500 $SPX: -0.82%
The Nasdaq-100 $NDX: -1.8%
The Russell 2000 $RUT: -0.46%
At face value, these dynamics provide two key takeaways:
Stocks with a defensive tilt (value, high dividend) were stronger than tech/growth-related stocks. This is shown by the Dow Jones outperforming the S&P and the Nasdaq, confirming the need to emphasize value vs. growth in this environment.
Small caps shined, likely meaning that equal-weight outperformed market-cap weighted indexes. This is shown by the Russell outperforming all other indexes.
We can also adjust the beginning of our measuring stick to track the performance of each index from the weekly open (1/3/23) to the Thursday close (1/5/23):
The Dow Jones $DJX: -0.67%
The S&P 500 500 $SPX: -1.18%
The Nasdaq-100 $NDX: -2.7%
The Russell 2000 $RUT: -0.94%
These returns are even worse, highlighting how a large portion of the weekly returns were actually generated during the holiday vacation days when the market was closed.
Amidst a week driven primarily by stronger-than-expected labor market data, Friday’s spike in asset prices caught me by surprise. Without question, I didn’t anticipate such a strong day across the board. While stocks seemed to produce the largest gains on Friday, it was interesting to see that assets across the risk spectrum bounced higher, particularly bonds. After much deliberation, one of my favorite investment ideas for 2023 is zero-coupon U.S. Treasuries and the ETF ZROZ 0.00%↑.
These bonds are considered to be the most sensitive to interest rates because they don’t actually offer a coupon; however, they still offer the protection and lack of risk consistent with U.S. Treasuries. After Friday’s close, I noticed the following:
For ZROZ to jump so much this week, it highlights the significant decline in yields that occurred at the long-end of the curve. In the remainder of this report, I’ll cover in-depth yield dynamics, under-the-hood metrics for the S&P 500, and two important charts highlighting a correlation between Bitcoin and the stock market!