Pro Perspectives 5/13/22

May 13, 2022

As we head into the weekend, stocks had a nice technical relief rally.

Let's look at a few charts.

Here's the Russell 2000 (small caps)…

As you can see, the small cap index has fully retraced to pre-pandemic levels (and has bounced).

What else has fallen back to pre-pandemic levels? Japanese stocks did, in March. And German stocks are back to pre-pandemic levels.

Above is a look at the Nasdaq (the center of the tech bubble universe). As you can see, this has bounced from the 50% retracement of the move from the pandemic lows. Pre-pandemic levels for the Nasdaq would still be 20% lower.

So, has the tech bubble deflated – or more to come?

Bubbles tend to end with panic. What does seem to be on path for panic is the bubble in crypto currencies.

As we've discussed this past week, the stablecoin cryptocurrencies have been exposed as vulnerable this week (with the failure of the stablecoin Terra).

I suspect more is to come. And with that, brings risks to the financial system. Coincidently, the G7 finance ministers are scheduled to meet next week in Germany. If there are any shock waves from crypto, a coordinated response from global central banks to restore stability would likely be quick.

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