January 2024 Wrap-Up: How Did the Main Asset Classes Perform? 📊

🐺 Hi pack-mates,

This is Howling Markets, the newsletter that will not let your knowledge investment in the financial markets default!

Today we will be covering:

• Education: What Is a Write-off? ✂️

• Banks Are Struck By Significant Losses on US Commercial Property Loans 📉

• January 2024 Wrap-Up: How Did the Main Asset Classes Perform? 📊

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Is a Write-off??

A write-off is an accounting practice used to reduce the value of an asset and increase either the liabilities or register an expense to reduce taxable income.

In simpler terms, a write-off occurs when one of the assets you hold is not worth what it originally was, and you must remove it from your balance sheet. For example, if you sold a product to a client with the mutual agreement to be paid in one month, but in the meantime the client declares bankruptcy, you must write-off the “account receivables”.

Account receivables are the invoice registered as an asset on the balance sheet that represents the money that must be paid to the business for goods and services that have already been sold.

Write-offs are an unpredictable event, and because of this, most businesses hold a “bad debt provision” which is an emergency fund to be used to cover the losses of potential write-offs. The bad debt provision amount is calculated by taking into consideration the probability of the debt not being repaid times the number of receivables that the company has.

However, despite the provisions and the estimates, it is often the case that write-offs hit companies extremely hard, causing a significant reduction in net income and in some cases, they can even cause bankruptcy.

Banks Are Struck By Significant Losses on US commercial Property Loans

In our first newsletter of 2024 we had talked about the fact that the US commercial property sector was in serious trouble due to the higher interest rates and a worrying $117 billion of debt that had to be refinanced during the first months of 2024.

Now, some of these difficulties are starting to materialize and some lenders are starting to take the hit.

New York Community Bancorp (Ticker: NYCB), a US regional lender, announced on Wednesday that they had incurred $185 million in losses on just two loans and that they had set aside an additional $500 million as provision for potential bad debt losses.

Such an announcement wrecked the share price, sending it down almost -45% and causing a ripple effect, not only in the US regional lending market, but also worldwide.

This effect was felt also in Tokyo by Aozora, a mid-size lender active both in the Asiatic and American commercial real estate market. On Wednesday they announced that due to substantial losses in the US department, they had revised their one year profit from $165 million to a loss of almost $200 million.

As a result, its share price (Ticker: 8304) fell first by 20% on Thursday and then an additional 15% on Friday, totaling a drop of -33.99%.

Today’s Howling Question

And now, it is time for our howling question!

We have looked at the performance of the American S&P 500 Index, but what about its European counterpart? Do you know how the Stoxx 600 performed in January?

a) -3%

b)  -1.5%

c)  0%

d)  +1.5%

e)  +3%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

January 2024 Wrap-up: How Did the Main Asset Classes Perform? 

Let’s start our January recap from the stock market.

This month has been an exceptional one for the SPX because, despite gaining just +1.58%, the S&P 500 set its all-time high at $4927.94. However, it is also important to say that the last day of the month was the one when Powell held the FOMC meeting and the price plummeted, possibly signifying the beginning of a correction.

On the other hand, the 10 year US government bond yield moved higher throughout the majority of the month and during the last couple of days it tumbled down, closing the month just up +1.29%.

Initially the move higher was caused by the adjustment of the market’s interest expectations, which now had to price-in higher rates for longer.

Bitcoin has been a complete rollercoaster. It began the month with a +11% rally before the approval of the spot ETFs, but as soon as they were live, the price plummeted -15% before slightly recovering before the end of the month.

In the end, Bitcoin concluded January +0,71% higher.

Gold, instead, had set a new all-time high right before the end of the year and from there it continued to slide down through the most part of January. By the end of the month, it started recovering and now it is very close to its all-time high, meaning that in February it could potentially challenge its previous record.

In January gold lost -0.21% with respect to the end of December.

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

Despite yesterday’s ruinous trading day for the stock market, caused by Jereme Powell’s speech, during Thursday’s trading session the stock market recovered by scoring a +1.25% gain. Such a move was fueled by the positive earnings announcements made by tech companies, which were able to carry the market higher once again.

On the other hand, the 10 year US government bond yield continued its downfall by losing an additional -0.87% and extending its previous days’ fall. However, it is important to notice the indecisive candle shape, with a long wick both up and down, signifying that a couple consolidation candles might be on the way.

Answer

The correct answer is e) +66%.

It is absolutely crazy to think about, but this hedge fund averaged a 66% gross return over a period of 30 years, meaning that if you would have given $1 in 1988 to the Medallion fund, you would have had $42,000 in 2021.

Howl-Worthy Memes 😂

🐺 See you next time!

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