Edition #53 - 7.20.2021
Wealth Growth, Stock Market Pressure & Nasdaq-100 Update, Bitcoin Price Update
Economy:
Yesterday, the Federal Reserve Bank of St. Louis published some fantastic data on net worth gains in 2020. Over the course of the last 12 months in particular, I’ve seen constant headlines that “the richest 1% of Americans had their wealth grow by x%” in 2020, to insinuate that the richest members of society have had a stellar financial year while many Americans are facing financial hardship & health concerns. Here’s an example from CNN:
“America’s billionaires have grown $1.1Tn richer during the pandemic”
Many of these articles conveniently pick their start date in mid-March 2020, which coincides exactly with the bottom of the stock market. Considering that the S&P 500 gained about +77% from the COVID lows to the time the article was published on January 26, it’s not much of a surprise that U.S. billionaires saw an increase in their net worth of +40% over the same period. These articles conveniently vilify the rich in order to espouse higher tax rates or to propose policy that would combat inequality, but they almost always provide incomplete data in order to frame a particular topic in a certain way (no surprise there).
Thankfully, the data from the Fed is exactly that: data. There’s no narrative that’s being pushed & it helps to provide an accurate snapshot of the true economic dynamics. Per the research from the St. Louis Fed, the data was split into 4 categories of different percentiles, as shown in the legend below:
After trying to understand more about how the data was presented, I found out that the hash marks on the x-axis are the end of each period. Therefore, the hash mark for “Q4 2020” is synonymous with 12/31/2020. The data shows that in the calendar year of 2020, the top 1% had their net worth grow by +14.9% while the bottom 50% had a +18.3% growth in their net worth. This means that the bottom 50% saw their wealth grow by a rate 22.8% higher than the top 1%, which is calculated by the following: [(18.3/14.9)-1 = 0.228]
Through the end of the first quarter of 2021, the data diverges even more and shows that the top 1% had a +20.7% increase vs. the bottom 50%’s increase of +30.3%. In this timeframe, the bottom 50% saw their wealth grow by a rate +46% higher than the top 1%. In dollar terms, total assets for the bottom 50% increased by $520Bn from $6.95Tn to $7.47Tn. We can attribute that growth to the following sources:
29% from Real Estate (equal to $150.8Bn)
27% from Other ($140.4Bn)
25% from Consumer Durables ($130Bn)
12% from Pensions ($62.4Bn)
8% from Corporate Equities ($41.6Bn)
The takeaway here is very simple: 2020 was a stellar year for the majority of Americans in terms of their financial health & net worth. The substantial increases in wealth were not limited to the top 1% of Americans, but were seen across the board for these four major percentile groups. In fact, the lagging group at the end of just about every quarter was the 90-99th percentile, representing households with incomes between $201,000-$531,000. During calendar year 2020, the net worth held by this group increased by +10.2%, the lowest of the four categories.
Stock Market:
On June 23rd, in Edition #31 of this newsletter, I shared the following chart of the Nasdaq-100 to outline the trajectory I believed we were going to follow:
On June 9th, I provided an update in Edition #43, where I said the following:
I still believe the current price is an important inflection which could lead to a consolidation back to either Point F’s on my chart… [which] would imply a drawdown of -2.5% to -5.5%.
Here is the updated chart as of the market close on 7/19:
Since the open on July 9th, the market has been quite volatile, gaining as much as +1.9% to ATH’s and proceeding to fall -3.1% from those highs so far. Since the open on July 9th, the index has only declined by -1.2% but is quickly approaching the decline of -2.5% to -5.5% that I outlined. Recall, these drawdown estimates were determined from the two Point F’s that I have on my chart. I still believe the grey range is the most likely support area for price to fall to & potentially rebound on. I remain open to the idea that stocks make new ATH’s over the next week or two, but I believe that a slight pullback should be welcomed & remains the most likely scenario. Additionally, it is also possible that price falls below the grey range on my charts. We’ll need to analyze market conditions if/when we get there in order to make the next determination, but it’s been extremely beneficial as a trader to have suspected this pullback & market volatility over the last two weeks.
I will continue to trade based on these levels on my chart & allocate capital accordingly. I’ll be sure to update if/when there’s meaningful developments.
Cryptocurrency:
The consolidation period & selling pressure continue to the primary theme right now in the Bitcoin market. As we’ve been covering closely, here is the updated price structure that I’m seeing on the chart:
First of all, the white, yellow and red lines on this chart are identical to the ones I shared on 7/12. Price has continued to respect these levels during this consolidation period; however, the longer we remain within this white channel, the more likely we are to break beneath it. I believe we are at a critical juncture in terms of short-term price action, in which the $30k level is once again being retested. A decisive break below the yellow level could imply a significant drawdown, potentially below $24k. Meanwhile a break above the red trend line could imply a new extension back to the upper-bound of the white channel, slightly above $41k.
Until tomorrow,
Caleb Franzen