Edition #196
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Investors,
Apologies for the delayed report — I had a speaking arrangement on Sunday that occupied my time. I’m very pleased to share this latest research report with you, analyzing the current market trends in order to understand how markets are likely to evolve going forward. If you enjoy the free weekly reports of Cubic Analytics, I know you’ll love the full version of these premium reports that are exclusive for paid monthly/annual members.
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Throughout 2022, my assessment of markets can be summarized by two core pillars:
Investors should continue to dollar-cost average (DCA) into high-conviction assets & core portfolio holdings.
Investors should use market rallies to de-risk their portfolios and raise capital to fund their DCA purchases.
This dual-pronged approach has allowed investors to reduce short-term risk while steadily increasing their long-term exposure to assets — a key goal of long-term investing. As we’ve traversed through historically poor asset performance in 2022, this strategy has balanced a tightrope of weighing risk vs. reward. I’m not here to provide catchy headlines or controversial opinions about the economy or the stock market. I’m simply trying to provide prudent insights, acknowledge the nuanced aspects of risk/reward, and equip readers with the tools necessary to make sound investment decisions.
As I look at the market today, we’re experiencing the most significant bear market rally thus far. As of Monday morning, here are the returns from their respective YTD lows, which generally occurred in mid-June 2022:
Dow Jones Industrial Average $DJX: +10.9%
S&P 500 $SPX: +13.75%
Nasdaq-100 $NDX: +18.2%
Bitcoin $BTC: +33%
Ethereum $ETH: +91%
Total Crypto Market Cap $TOTAL: +39%
This has unequivocally been a forceful & broad rally, despite a further increase of inflation and a Federal Reserve who has hiked interest rates by 150 basis points in 6 weeks. Even bonds have accelerated higher, seeing the iShares 20+ Year Treasury ETF TLT 0.00%↑ gain +10% since the YTD lows!
On June 25th, I published Edition #185 to explore whether or not economic data was driving financial markets or if financial markets were leading economic data. I explained my belief that financial markets were at an inflection point, indicating that inflation had peaked and asset prices were in the early stages of a potential reversal. This analysis was driven primarily by the dynamics in the bond & commodity markets — two boring asset classes that are criminally under-analyzed.
Since that publication, we’ve seen financial markets continue to celebrate as if inflation has peaked, but we have yet to see any material evidence of inflation slowing down. In fact, we’ve only seen inflation rise. This interesting deviation forces us to ask the single most important question in the market today: