Inflation Data Slowed in October
What is it?
The stock markets were relieved to see inflation data that was lower than expected.
“The Consumer Price Index (CPI) for October reflected a 7.7% increase over last year and 0.4% increase over the prior month, better than Wall Street expected. Economists surveyed by Bloomberg called for a 7.9% annual rise and 0.5% monthly gain.”*
Why does it matter?
Markets responded positively to the news. Stocks jumped higher before markets opened on Thursday, and continued to move that way through the close. While markets have jumped up before continuing down in the past, this is a signal that the markets are happy with the current conditions. Inflation has been a burden on investments for a while. Although the data is only slightly positive, the markets have put emphasis on this glimmer of hope that inflation is being controlled. If inflation continues to be lower than expected, investors may anticipate a lower interest rate hike from the Federal Reserve. For now we are keeping a risk-off allocation, however that may change as the long term down trends could break higher.
Bad News Brings Crypto Prices Down
What is it?
“Bitcoin prices dropped below $16,000 Wednesday afternoon after Binance, the largest crypto exchange, backed out of its emergency deal to acquire rival FTX.”**
“Binance CEO Changpeng Zhao said in a memo earlier on Wednesday that there was no “master plan” to take over FTX, and that “user confidence is severely shaken.”***
Why does it matter?
Investments do not perform well when investor confidence is declining. This news hurt the entire industry in the short term. It is yet to see how this evolves longer term.
“Coinbase Chief Executive Officer Brian Armstrong said Tuesday in a Bloomberg TV interview that if the deal with Binance fell through, it would likely mean FTX customers would take losses.”***
Binance was hoping to provide liquidity, or a place for FTX users to trade their securities held at FTX.***
“The renewed concern about contagion risk is showing up in the plunging prices of digital assets. Bitcoin fell below $16,000, the lowest in two years, after Binance’s announcement.”***
As the news unfolds, investors use that information to capitalize on price changes in an efficient market. This was big news that may change rules and regulations down the line. It also sets a negative precedent for the crypto market as a whole. We will continue to assess these changing conditions in an attempt to invest in line with the trends. For the time being, crypto-related investments are not a place that we want to invest in.
Other articles we found interesting this week:
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Our last portfolio reallocation: 5/19/2022.
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The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
*Alexandra Semenova. “Stock futures surge as CPI shows inflation eased in October”. 11/10/2022. Yahoo FInance. https://finance.yahoo.com/news/stock-market-news-live-updates-november-10-2022-123913396.html
**David Hollerith. “Bitcoin price drops below $16K after FTX-Binance deal falls through”. 11/9/2022. Yahoo Finance. https://finance.yahoo.com/news/bitcoin-crypto-ftx-binance-contagion-224955324.html
***Gillian Tan. “FTX Hurtles Toward Bankruptcy With $8 Billion Hole, US Probe”. 11/10/2022. Yahoo Finance. https://finance.yahoo.com/news/ftx-hurtles-toward-bankruptcy-8-100849312.html
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