🐻 Market Correction or Bear Market?

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What’s on the Menu 🍴

The old saying goes - "There are decades where nothing happens; and there are weeks where decades happen.”

And right now it feels like decades are happening… all. the. time.

Today we’re diving into what’s moving, what could shake up the markets, and what to keep your eyes on this quarter.

Let’s chow down!

• U.S. Lawmakers Push SEC to Greenlight Spot Bitcoin ETF 🚦

• Market Corrections vs Bear Markets 🐻

• Top Economic Data To Watch This Quarter 👀

• Skyrocketing 30-Year Yield Rattles Markets

Today’s newsletter is a 4 minute read.

U.S. Lawmakers Push SEC to
Greenlight Spot Bitcoin ETF 🚦

Last month we wrote about the how massive a spot ETF would be for bitcoin.

And the heat is getting turned up on the SEC to greenlight the ETFs, ASAP!

In a bipartisan push, members of the House Financial Services Committee are urging the SEC to immediately approve spot Bitcoin ETFs.

The Big Picture: The SEC has been notably cautious about giving spot Bitcoin ETFs the go-ahead, despite having approved crypto futures ETFs. This move follows a judicial nudge last month suggesting the SEC rethink its stance.

The Rundown: A cross-party quartet composed of Reps. Mike Flood, Tom Emmer, Wiley Nickel, and Ritchie Torres has taken up the pen to address SEC Chair Gary Gensler.

• Their point? A spot Bitcoin ETF isn't that different from the crypto futures ETFs already enjoying the SEC's warm embrace.

• Legal Backdrop: The D.C. Circuit Court of Appeals ruled last month that the SEC's rejection of these types of applications had been, in the judge's words, "arbitrary and capricious."

• Names to Watch: Fidelity, BlackRock’s iShares, and Grayscale Investments are among the big players keen to get SEC approval.

The Bottom Line: The approval of a spot Bitcoin ETF would make investing in crypto more accessible for Average Joes and Janes.

Simply put, these ETFs are designed to be as easy to trade as swiping right on a dating app—no awkward conversations required.

This bipartisan push could potentially accelerate SEC's approval process. Should it go through, investors might soon find entering the crypto market as simple as ordering a latte.

Market Corrections vs Bear Markets 🐻

The S&P 500 index is currently down 7% from its 2023 high, the Nasdaq-100 index is down 9% from its high, and the Russell 2000 index is off 12% from its high back in July.

That puts the market in the midst of a good old fashioned correction, but all three indices remain in the green year-to-date:

While things seem a bit gloomy in the investing world right now, it’s always important to zoom out for a broader perspective. We are not yet in a bear market and not yet in a recession.

Market corrections of this level are actually quite frequent:

We get a correction like this in most calendar years, and corrections tend to be good buying opportunities because many stocks will fall even further than the broad indices.

What about bear markets, when the indices fall 20% or more from their highs?

Those are far less common than a typical correction:

Bear markets also tend to be slightly more frequent than actual economic recessions, when overall economic activity actually declines on an aggregate basis.

These base rates are important to know because as investors we don’t want to overreact to every frequent market correction as if it’s a bear market or economic recession.

Novice investors will often exit all their financial assets during a correction, thinking they will be able to sit out a prolonged bear market. That almost always tends to be a costly mistake!

Personally, our greatest wealth building events came from buying fundamentally strong stocks during corrections and bear markets, and then waiting for the eventual recovery.

Obviously you have to retain some dry powder (aka cash!) to be able to deploy during those uncertain times when other investors are selling things indiscriminately.

This is another reason we’ve favored a “T-bills & Chill” strategy for a good chunk of our portfolio this year.

We can buy short term bonds and earn 5%+ annually on our excess capital while we wait for the stock market dips to deepen.

The key is that at some point we have to take the leap; we can’t remain too fearful once the charts get really ugly and the stocks finally get cheap.

Buying when there’s rampant fear takes COURAGE.

But if we’ve learned anything from studying past cycles, by the time its all sunshine and rainbows again in the market, the easy gains will have been made!

Top Economic Data To Watch This Quarter 👀

Wondering what’ll happen with the economy as high interest rates dig their claws?

We’ve got a few things brewing that could keep the economy “slogging” along, or bring us into a full on recession.

1. Student loan payments resuming

2. Oil prices

3. New home sales

4. A weaker stock market

So, here are the most important data points to pay close attention to based on the above list.

1. Checkable deposits: There has already been buzz that the treasury has received some repayments of student loans due.

High-yield savings accounts may be categorized as checkable deposits. So it’s possible borrowers have been hoarding money here to earn interest, with a plan to pay back loans later.

Watch for a drop in checkable deposits to coincide with this idea.

2. Oil prices: Watch the oil price chart. If oil keeps heading higher, we could run into issues with inflation staying sticky.

For the sake of the economy holding up, we don’t want to see prices get back to pandemic highs. Fortunately (or unfortunately if you’re an oil bull), we still have a lot of room to return to the high.

3. New home sales: As the saying goes, “housing is the economy”. If that is so, we need to watch new home sales.

We’ve all basically given up on the locked existing housing market so for now, we can use new home sales as a barometer for housing demand.

4. A weak stock market: The top data point to watch for this is without a doubt, money market mutual fund assets.

The big question on our minds: is the cash on the sidelines earning risk-free interest in money markets going to move into fairer valued equities?

Money market mutual fund balance trend will tell us if investors are “buying the dip”.

These data points will be worth keeping a very close eye on alongside inflation, unemployment, retail sales and jobs data.

Chart of the Day 📈🚀
Skyrocketing 30-Year Yield Rattles Markets

The 30-year U.S. bond yield is breaking out to levels not seen since 2011, surpassing 4.6%.

Why it Matters: This surge could be a mood ring for the broader economy. It's the kind of shift that impacts everything from the stock market to your mortgage rate.

Key Developments:

• Turbulence Ahead: A higher bond yield can signal a bearish tilt for stocks.

• Mortgage Mayhem: If you were mulling over a new home, brace yourself. Rising yields usually pull mortgage rates up by their bootstraps.

• Economic Echo: When bond yields spike, borrowing costs for companies climb too. This could crimp business expansion and even lead to job cuts. It's a full-circle moment, folks.

What this means for you: As the 30-year bond yield dances to a decade-high tune, keep an eye out for its ripple effects.

The landscape of investing—and perhaps your monthly budget—could be in for a seismic shift.

Delicious Bites 😋

• Inflation “finally” hurting consumers

• Target closing stores due to theft

• The Hollywood Strike Is Ending. This Is How It Happened.

• Young adults living with a parent highest since 1940

• Thirty years of music revenue, categorized by type of media

Food For Thought 🧠

"With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future."
- Carlos Slim Helu

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.