Why The Markets Are Nosediving

What’s on the Menu 🍴

Volatility all over the place!

Here’s what we’ve got for you:

• The Bitcoin Whiplash Explained ₿

• Mid Cap Stocks: The Forgotten Ones 📈

• What To Watch This Week 👀

Today’s newsletter is a 5 minute read.

The Bitcoin Whiplash Explained ₿

In our last Daily Dough, we explained the bull case for Bitcoin.

But just like that ex who keeps you guessing, the crypto market has thrown us a curveball.

Over the past few days, Bitcoin has taken a nosedive, and if you're feeling whiplash, you're not alone.

Let's unpack the perfect storm causing Bitcoin's latest pullback.

1. Recession Fears

The R-word is back, and it’s sending shivers down the spines of investors.

Recession fears have ramped up, leading to a knee-jerk reaction from investors.

2. Stock Market Correction

When the traditional markets sneeze, crypto catches a cold.

A recent stock market correction has triggered risk-off behavior across all asset classes, including Bitcoin.

As the old saying goes, “Markets take the stairs up and elevator down.”

3. Geopolitical Tensions

Tensions from the Middle East to Eastern Europe are causing uncertainty.

Geopolitical instability often drives investors towards gold and away from more volatile assets like Bitcoin.

4. Mt. Gox Distributions

Remember Mt. Gox?

The infamous hacked exchange is in the process of distributing Bitcoin to creditors.

This flood of BTC into the market is creating supply-side pressure.

5. Yen Unwinding

The yen's recent strength has created waves.

Japanese investors unwinding their positions have added to the global market's volatility, and crypto hasn’t been spared.

6. Trump Presidency Odds Decreasing

Love him or hate him, Trump's influence on market sentiment is undeniable.

With his odds of returning to the presidency dwindling, some investors are losing a key bullish driver.

The Takeaway

It's a perfect storm of factors, each contributing to the choppy waters we're navigating.

But hey, if Bitcoin's history has taught us anything, it's that this rollercoaster ride is part of the thrill.

Stay buckled in and keep your eyes on the long-term horizon.

Mid Cap Stocks: The Forgotten Ones 📈

It feels like all we’ve heard about lately is tech… and small caps.

Small cap stock valuations have had a hard time recovering in the face of higher interest rates.

The tables turned a few weeks ago as small cap stocks soared (which these gains have been given back since).

It begs the question… what about mid-caps?

Why do mid-cap stocks seem to never be discussed? They’re financially better companies on average vs. small-caps (great if we’re looking at uncertainty), and there are actually some sound companies out there to own including some of the top homebuilders.

Take a look at data from JP Morgan:

Mid-caps have had higher profitability over small-caps as expected, but, it’s surprising how much EPS growth has outpaced BOTH large and small caps.

Mid-caps are actually expected to generate the highest returns as well.

Thinking about risk-adjusted returns, moving up into mid-caps gives you a bit more “security” with better fundamentals, while still allowing for room for extra returns.

So, although there is opportunity in small-caps, it’s probably a good idea to take a second look at mids for diamonds in the rough.

Especially as we roll into more uncertainty in the economy.

 What To Watch This Week 👀

Last week there was a notable shift in the market, as investors aggressively sold risk assets across the globe.

Investor sentiment has shifted into fear mode in a hurry:

A jump in the US unemployment rate and a lower manufacturing PMI added to worries about a softening economy.

With the US Federal Reserve keeping rates unchanged and not meeting for six more weeks, investors are now wondering if the Fed has once again blundered.

Rising conflicts in the Middle East and big moves in the Japanese Yen are also adding to the selling pressure in stocks and crypto.

Corporate earnings reactions last week tended towards the negative side.

This week will be another very busy week for Q2 earnings reports.

Companies reporting this week include Berkshire Hathaway, Palantir, Super Micro, Uber, Disney, Airbnb, and Shopify:

In addition to earning reports we will have the following releases on the economic calendar:

• US ISM Services (Mon)

• Reserve Bank of Australia interest rate decision (Mon)

• Canada PMI (Wed)

• China trade balance (Wed)

• China inflation rate (Thurs)

• Canada unemployment rate (Fri)

Bond yields took a nosedive last week, which was one silver lining in a sea of negatives.

Lower interest rates could eventually help reverse investor pessimism.

We’ll be watching bond yields this week as well as the following:

📈 Rising Recently:

• Real Estate (XLRE)

• Gold & Gold Miners (GLD / GDX / GDXJ)

• Utilities (XLU)

• Consumer Staples (XLP)

• Health Care (XLV)

📉 Falling Recently:

• Semiconductors (SOXX)

• Big Tech (QQQ)

• Crypto (BTC / ETH / SOL / WGMI)

• Internet & Software (IGV)

• Alternative Energy (TAN / PBW)

• Airlines (JETS)

• Energy (XLE / XOP)

Food For Thought 🧠

“If you have trouble imagining a 20% loss in the stock market,
you shouldn’t be in stocks.”
- John Bogle

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.