Market Overview

The financial markets recently experienced one of their most challenging weeks in nearly two years. The main U.S. stock indices suffered significant losses, particularly the tech-focused Nasdaq, which dropped 7%—its worst weekly performance since October 2020. The S&P 500 and Dow Jones Industrial Average also ended their third consecutive week in the red, with declines of 5.7% and 4.6%, respectively. The Nasdaq Composite fell 2.7% on Friday alone, marking a 7.6% decline for the week. Notably, the S&P 500 dipped below its 200-day moving average, a critical support level that had held since May 2020. The downturn in growth stocks has pushed the Nasdaq further into correction territory, down over 14% since its peak in November, as rising interest rates have made tech valuations less appealing.

Following an announcement regarding slowing subscriber growth, Netflix's shares plummeted by 21%. This downturn also affected competing streaming services like Walt Disney and ViacomCBS. Investors shifted funds from equities to bonds, leading to a decrease in the yield on the 10-year Treasury to 1.74%, its lowest level in a week. Oil prices also fell for two consecutive days, dropping below $85 a barrel, although oil has increased by 13% year-to-date.

The dollar index remained in a bullish consolidation phase for most of the week, closing at 95.63. The U.S. Federal Reserve has made a notable pivot in its monetary policy as 2021 comes to a close, but the broader implications of this more aggressive stance seem to have had minimal impact on the dollar and risk assets overall. If we interpret the lack of clear direction amid this significant shift at face value, it suggests that other fundamental factors may be influencing the U.S. dollar. Diverging monetary policies, economic narratives, and yield disparities are likely to dictate the currency's movements in the near future. Currently, the market appears to be in a state of confusion.

As cryptocurrencies mirrored the U.S. stock market downturn, particularly the Nasdaq, we see a growing correlation between stocks and Bitcoin. The previous week exemplified the heightened volatility that often characterizes the crypto market. Alongside Bitcoin, many major digital currencies have experienced steep declines, with all of the top ten (excluding stablecoins) falling by over 25% within the week. As of now, Bitcoin is trading around $34.5k, nearing the significant support level of $30k, while Ether is approaching $2300.

The volatility witnessed in 2020 was unprecedented. During the turbulence caused by COVID-19, the CBOE Volatility Index reached levels not seen since 2008. The accompanying infographic from iShares illustrates how ETFs gained traction during this tumultuous period, showcasing their unique advantages in times of market instability.