Invictus Capital: Weekly Wrap 29.01

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Market News

Market chatter this week was overwhelmingly dominated by the unprecedented standoff between WallStreetBets (a Reddit community of retail investors), and large hedge funds with massive short positions on struggling companies, most notably GameStop (GME). GameStop saw its stock price soar to a high of $492 (after beginning the year sub-$20) on the back of an epic combination of a gamma and short squeeze fuelled by frenzied purchasing from the retail community. However, the party seems to be under threat following trading halts on the stock across a range of trading platforms — most notably Robinhood.

The ongoing saga reflects broader society’s contempt for the financial industry, with the pain and injustice of the 2008 financial crisis still keenly imprinted on society’s collective psyche. This may herald a turning point in crypto’s history, as the search for viable alternatives to the status quo in finance are sought with greater urgency. This effect was exhibited Friday when Elon Musk appeared to support alternatives through his promotion of Bitcoin in his Twitter bio, which quickly saw the Bitcoin price spike 20% — again closing in on the $42,000 high set earlier this month.

The highlight of more conventional market news this week was the Federal Reserve’s first interest rate decision of the year, where rates remained unchanged at near-zero, while the central bank committed to continued quantitative easing in support of the recovery.

Stock markets found themselves under pressure from the triple threat of disappointing earnings for tech stocks (including Tesla), continued spread of COVID-19 in many regions (with the more transmissible SA/UK and Brazilian variants all identified in the US), as well as concerns that the WallStreetBets debacle would ultimately result in tighter regulations for the financial industry (with names including Democrats Elizebeth Warren, Alexandria Ocasio-Cortez, and even Republican Ted Cruz coming out in support of the motley gang of Redditors). The dollar benefitted from this risk-off sentiment, with gold struggling against the strong greenback.

Later on Friday: Johnson & Johnson announced spectacular results for their easy-to-store vaccine, with the single-dose vaccine achieving 66% efficacy for preventing infections, with no hospitalizations recorded for any of those who received the vaccine. This boosted risk-on sentiment, prompting a pickup in bond yields and inflation expectations with the dollar weakening and global stock markets receiving a boost (with pandemic hedges such as US tech struggling).

Indicators (22–29 January)

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