Market Crash across Asset Classes

Good Morning Ladies and Gentlemen

Since the beginning of the year, almost all asset classes have been deeply in the red. By spreading investments across different asset classes, investors can usually spread their risks. Unfortunately, this does not seem to be working correctly at the moment.

DAX: -12.94%, Euro Stoxx 50: -15.13%, SMI: -10.27%; Nasdaq: -26.67%, Dow Jones: -12.4%, Gold +1.51%, Bitcoin: -40.69%.

Equities

It was a sell-off across the board. April was the second-worst month for equity investments since 1976. Furthermore, this time the losses were not compensated with gains on bonds. On the contrary, the bond markets were hit even harder. As a general rule, stocks gain when bonds lose – and vice versa. Since 1976, this rule has been confirmed in 84% of all stock market months, writes Burkhard Varnholt, head of investment strategy at Credit Suisse Switzerland, in one of his latest weekly report. “Only once, in May 1994, was the combined loss from equities and bonds greater than in the last month of April.”

Government Bonds

Since the beginning of the year, long-dated US government bonds have lost almost 30 per cent in value, even more than the index of the technology exchange Nasdaq. It was the worst start to the year for US government bonds in more than 200 years, according to asset manager DWS. Swiss government bonds, the epitome of security, have lost 12 per cent since the beginning of the year, more than Swiss equities.

Gold

As some of my readers keep pointing out, one big disappointment in the environment of rising inflation was undoubtedly the development of the gold price so far. With a modest gain of 1.5% this year, one cannot speak of excellent inflation protection, and I must say, I am surprised myself. Nevertheless, physical gold is my ultimate protection, and I would not think about selling any of it.

Cryptocurrencies

The youngest of these asset classes still have a long way to go. Bitcoin is called “digital gold” by its supporters. According to the narrative that dominates the internet and social media, Bitcoin will replace gold as a hedge against inflation (thesis number one) and provide refuge when governments confiscate private assets (thesis number two). However, one thing is clear for the time being: cryptocurrencies are not yet the promised “digital gold”. The bitcoin price runs more or less parallel to the US technology exchange Nasdaq as I have pointed out on multiple occasions. Analysts at the US investment bank J. P. Morgan already noted last year that the correlation, i.e. the statistical connection between Bitcoin and stocks, was becoming stronger: “Cryptocurrencies continue to be the worst hedge against sharp downturns in the stock market.” The more popular Bitcoin becomes, the more it becomes a cyclical financial product and the less suitable it is for diversification. Maybe this means that its great success until the summer of 2021 has to some extent, negatively impacted its formerly positive diversification features, at least temporarily.

Commodities

Only commodity investments are firmly up. A formerly unloved sector by many investors that had been hammered down and suffered during a difficult time for years and years is outperforming during one of the most challenging market environments ever since the Great Financial Crisis. This is fantastic, Ladies and Gentlemen, please do not forget that commodities are tangible.

What does all of this tell us

There are no 100% certainties to rules in financial markets. But, eventually, the most unloved asset may become the outperformer of the year or even decade and do not get carried away by greed and not by fear either, and, the darkest moment of the night comes shortly before dawn.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth

Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li