Market Commentary — May 16, 2022

U.S. stocks recorded a second consecutive week of losses as investors question the Fed’s ability to achieve a “soft landing”, aka taming inflation without killing the economy and plunging it into recession. U.S. inflation data edged down to 8.3% in April but remains close to the fastest pace in 40 years.

At its low point on Thursday, the S&P 500 Index was down almost 18% from its peak level, just shy of bear market territory, but stocks rallied late session which carried on Friday, helped by a rally in Tesla after Elon tweeted his Twitter deal might be “on hold” and “risk-on” buying of many beaten-down tech names.

The University of Michigan’s preliminary survey of consumer sentiment in May, released on Friday, demonstrated the toll that inflation was taking on confidence. The survey’s sentiment gauge fell much more than expected (59.1 vs consensus estimates of 64) and hit its lowest level in 13 years.

Cryptocurrencies swooned after a “so-called” stablecoin Terrra USD and its sister coin Luna unexpectedly crashed, saddling investors with billions of dollars in losses and creating a big problem for the ETPs that own it. VanEck and 21Shares have suspended creations and redemptions on their Terra ETPs and Valour halted trading completely as Luna hit $0 on Friday. None of this can be helpful for the prospect of a spot Bitcoin ETF approval in the U.S. and it also calls into question crypto’s diversification properties. Crypto assets have been selling off along with other “risk-on” assets.

Further adding to crypto woes was Coinbase’s earnings miss which sent the stock cratering more than 20% on market open Wednesday along with the revelation that in the case of a bankruptcy customer assets might be treated as unsecured creditors.

Meanwhile, Grayscale is still trying to convince the SEC to approve its conversion of GBTC into a Bitcoin ETF, arguing it would broaden access to bitcoin and enhance protections while unlocking $8 billion in value to investors.

So what were ETF investors buying and selling last week? According to data from Refinitiv, the SPDR Portfolio S&P 500 High Dividend ETF (SPYD, +$1.3 billion) and iShares Russell 2000 ETF (IWM, +$930 million) attracted the largest amounts of net new money, while at the other end of the spectrum, the SPDR Gold Shares (GLD, -$1.3 billion) and iShares MSCI USA Value Factor ETF (VLUE -$735 million) suffered the largest net redemptions of the week.

For the fourth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $3.2 billion last week. APs were net purchasers of government-Treasury ETFs (+$4.0 billion), corporate high-yield ETFs (+$850 million), and international & global debt ETFs (+$246 million) while being net redeemers of corporate investment-grade debt ETFs (-$1.4 billion).

Have a great week everyone!

Jane Edmondson
CEO and Co-Founder

About

EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former Institutional Portfolio Manager with more than 25 years in the investment industry.

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