In this weeks market review, we’ll provide an overview of the current state of the financial markets. We’ll compare the current drawdown with its historical counterparts. You can visit last weeks market review here.
We'll start with a look at notable performances over the past week.
Last week saw a positive reversal of fortune for the main indices, which traded sideways in February. The Nasdaq-100 (QQQ) rose by 2.68%, while the S&P 500 (SPY), Russell 2000 (IWM), and the Dow Jones Industrial Average (DIA) all recorded gains of roughly 2%. The previous week saw a significant drawdown, with many of the main indices recording their worst week of the year.
The Nasdaq-100 has shown remarkable strength this year, bouncing back from a 33% decline in 2022. It is worth examining how this year's performance compares against historical data. Notably, the Nasdaq-100 has achieved its third strongest start to the year since 2006. In the two instances prior to this, when the index had a better start to the year in 2012 and 2019, it increased 18% and 39%, respectively. It's a promising sign.
Shifting the tone from the previous section, it's important to note that we are still in the midst of a bear market. To gain perspective, we have examined previous drawdowns and compared them to the current one. The similarities between the current and past bear markets are noteworthy. Presently, we are 300 days into this bear market, and the returns are nearly on par with those of the Dot Com and 1973 drawdowns. The bottom came in at close to -50% on these occasions. Despite unique financial conditions in each case, the chart provides valuable information to manage expectations.
It's crucial for investors to recognize and invest in style factors, which are an important asset class. Let's examine the previous year's performance of several prominent style factors, including Value, Quality, Low Volatility, Dividend Yield, and Momentum. As illustrated in the chart below, Dividend Yield, Low-Volatility, and Value have demonstrated superior performance. In an environment of higher volatility and high interest rates, investors tend to seek safer assets or cash flows with shorter durations.
Another week of losses for cryptocurrency as it continues to display short-term weakness after a red-hot start to the year. On Friday, March 5th, Bitcoin experienced a rapid 5% drop in one hour due the fear caused by the likely collapse of yet another crypto institution, Silvergate Bank. Subsequently, Bitcoin slipped below its 50-day moving average for the first time since the beginning of the year.
By the end of the week, Bitcoin had declined by -3.4%. Other significant cryptocurrencies, such as Ethereum (ETH) and Binance Coin (BNB), also witnessed a 3.4% fall, while Polkadot recorded a weekly return of -9.1%. The returns of the major cryptocurrencies are listed below, for various periods.
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