About: Investoom Weekly is the newsletter by the market intelligence company Investoom that provides AI-powered investment insights through social sentiment data, onchain data and financial data. Investoom democratizes the access to hedge fund insights.

Overview of the topics

• Stocks Highlights: On Thursday, the S&P 500 saw a decline of 1.6% due to a slump in banking stocks led by SVB Financial.
• Financial Data: The average annualized return of the S&P 500 since 1928 through December 31, 2021, has been 11.82%.
• Social Data: The collapse of Silvergate Capital has raised concerns among investors about the ripple effects in the financial sector.
• Onchain Data: The average duration between BTC topping and the S&P 500 reaching its bottom is approximately 48 days.
• Deep Dive: Today, the price of BTC experienced a sharp drop of 8%, falling below $20,000.

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Stocks Highlights

Wall Street falls on bank stock tumble

On Thursday, the S&P 500 saw a decline of 1.6% due to a slump in banking stocks led by the American commercial bank SVB Financial. This came at a time when investors were already worried about the upcoming jobs report, which could signal the return of aggressive Federal Reserve rate hikes.

With this respect, SVB Financial announced a $2.25 billion equity raise after reporting a net loss of $1.8 billion and negative first-quarter guidance due to the impact of high-interest rates. Unlike most banks, it is particularly hurt by rising rates because its deposit base is mainly made up of rate-sensitive commercial customers. The past slump contributed to negative sentiment around banking stocks, which are affected by a more profound inversion in the yield curve, signaling a possible recession.

Bank of America Corp, Wells Fargo & Company, and JPMorgan Chase & Co were down more than 5%, while crypto bank Silvergate Capital plummeted 20% as it looks to wind down operations following a $1 billion loss in Q4. Technology stocks also suffered, with Meta Platforms stumbling by more than 1%. However, General Electric rose nearly 7% after reaffirming its 2023 guidance, and PayPal remained above the flatline after reporting better-than-expected performance.

General Motors fell 4% after announcing a $1.5 billion hit from its voluntary separation program. The decline in the stock market comes just before the nonfarm payrolls report, which is expected to show the creation of 205,000 jobs in February.

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Financial Data

Which companies are in the S&P 500?

The S&P 500 is a popular stock market index that tracks the performance of 500 large companies listed on US stock exchanges. It is considered a leading indicator of the health of the US stock market and as of December 31, 2020, over $5.4 trillion was invested in assets linked to its performance.

The index is weighted by the market capitalization of its components, with the nine largest companies accounting for 27.8% of the market capitalization as of August 31, 2022. We shall also take into account the S&P 500 Dividend Aristocrats, that are components that have increased their dividends for 25 consecutive years.

Ticker symbols associated with the S&P 500 include ^GSPC, INX, and $SPX. The index is maintained by S&P Dow Jones Indices, and its components are selected by a chosen committee. Concerning its performance, the average annualized return of the S&P 500 since 1928 through December 31, 2021, is 11.82%, while the average annualized return since adopting 500 stocks in the index in 1957 through the same period is 11.88%.

How to achieve such high performance? The S&P 500 index is managed by S&P Dow Jones Indices and the components of the index are selected by a committee. Unlike other indices, like the Russell 1000, it is not strictly rule-based. The committee considers eight primary criteria when assessing the eligibility of a new addition: market capitalization, liquidity, domicile, public float, Global Industry Classification Standard, representation of industries in the US economy, financial viability, and length of time publicly traded on a stock exchange.

To be added to the index, a company must have a market cap greater than or equal to $12.7 billion, an annual $ value traded to float-adjusted market capitalization greater than 0.75, and a minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date. Additionally, the company must be publicly listed on either the NYSE or NASDAQ.

Moreover, a stock may rise in value when it is added to the index since index funds must purchase that stock to continue tracking it.

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Social Data

The history of the S&P 500: from 1860 to 2023

The history of the S&P 500 Stock Composite Index dates back to 1860 when Henry Poor formed Poor's Publishing. Later, in 1923, the Standard Statistics Company started rating mortgage bonds and developed its stock market index, consisting of 233 US companies, computed weekly. However, in 1941, Poor's Publishing merged with Standard Statistics Company and gave birth to Standard & Poor's.

On March 4, 1957, the index was expanded to include 500 companies and was renamed the S&P 500 Stock Composite Index. In 1976, The Vanguard Group offered the first mutual fund to retail investors that “tracked" the index. The Chicago Mercantile Exchange started trading futures based on the index on April 21, 1982, whereas the Chicago Board Options Exchange began trading options based on the index on July 1, 1983. The index value was updated every 15 seconds beginning in 1986.

The Standard & Poor's Depositary Receipts exchange-traded fund issued by State Street Corporation began trading in 1993. CME Group introduced the S&P E-mini futures contract in 1997. In 2005, instead, the index transitioned to a public float-adjusted capitalization-weighting. However, the original SP big contract, which began trading in 1982, had its final trading date in 2021.

But what are the thoughts of American investors? Based on our analysis, it seems that the recent surge in equity markets over the past 2 months has been driven by bullish sentiment rather than positive economic indicators. Although this may lead the S&P 500 to rise another notch, the concern is that this sentiment is not driven by good news but rather a lessening of bad news. Therefore, it is possible that this only results in a bear market rally rather than a true recovery or reversal.

As a result, markets are still dominated by extreme fear. As already seen, stock markets experienced a sharp decline today due to a series of events that have left investors with more questions than answers. Contrary to what they expected, the US jobs report did not dominate the day's news, and the collapse of Silvergate Capital has raised concerns among investors about the potential ripple effects in the financial sector.

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Onchain Data

Is the S&P 500 correlated with Bitcoin?

For traditional market investors looking for signs of a potential shift of trend in US stocks, it may be beneficial to pay close attention to Bitcoin. Indeed, the leading cryptocurrency by market value has historically led major stock market bottoms by a minimum of six weeks.

According to analyst Kevin Kelly the average duration between BTC topping and the S&P 500 reaching its bottom is 48 days, while BTC typically reaches its bottom about 10 days prior. In fact, over the last five years, all major BTC price reversals have preceded similar reversals in major equity indices.

These findings suggest that monitoring BTC could provide valuable insight into the future performance of the stock market. However, it is important to note that past performance doesn’t guarantee future results, and investors should conduct thorough research and analysis before making decisions.

According to Delphi’s strategists, "The crypto market is one of the purest bets on global liquidity expansion and currency debasement. Not only is it influenced by macro factors, but when market conditions change, it’s often the first to react”.

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Community

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Deep Dive

Bitcoin drops as the US market suffers

Stock markets aren’t the only ones that are suffering. Today, the price of BTC experienced a sharp drop of 8%, falling below $20,000. The crash occurred in the wake of a sell-off in the US stock market and the collapse of a lender focused on cryptocurrency.

The overall cryptocurrency market also saw significant losses, with over $70 billion in value wiped out within a 24-hour period. The drop highlights the volatility of the cryptocurrency market, which can be subject to sudden price swings based on a variety of factors. Invite 3 friends to read the full article.

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News of the week

• Banks: Bank of England keeps close watch as Silicon Valley Bank shut by regulators. [Read more]
• Technology: Apple to shake up international sales operations to make India its own region. [Read more]
• Markets: European bank shares tumble day after U.S. market turmoil. [Read more]
• Investments: Holographic HUD company Envisics scores multi-million new investments from GM, Stellantis. [Read more]

Read the full version here.

About

Investoom is a Munich-based Fintech Startup democratizing the access to quantitative investment insights that are used by big hedge funds, but are inaccessible to retail investors. We are a market intelligence company that provides AI-powered investment insights through social sentiment data, onchain data and financial data.

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