Section 1-Monthly Economic Recap for January
A “hawkish” Fed is no longer your Market friend
January has been a negative month for US risk assets. Markets have reacted very negatively to an aggressive Federal Reserve. In this comprehensive report, we outline the economic performance of cannabis stocks and public markets.
This month was highlighted by a hawkish Fed that promises to begin its rate hikes in March. Along with the beginning of its balance sheet reduction throughout the year. Moreover, Fed Chairman Jerome Powell has spoken in favor of further raising rates if inflation does not start a moderation curve.
Regarding the Inflation issue, the January CPI index reached 0.6% (7.5% YoY) stating the fact that the inflation phenomenon is ceasing to be “transitory”. Evidence of its monthly evolution is clear in the picture below. This marks the highest YoY rate over the last four decades.
Along with inflation rates, there is the Labor Market performance that influences Fed´s hike rates decisions. In January, the Bureau of Labor Statistics (BLS) reported that the economy created 467,000 jobs. The unemployment rate remained constant at 4% surprisingly surpassed not only economist expectations but also ADP predictions. The chart below shows the labor market monthly job gain/loss evolution during the last year:
Taking a look at Equities, LATAM has had the best performance during January with returns of +8%, with falls in the rest of the zones, Asia -5%, Europe -6%, USA -7% and Japan is the country with the worst returns -9%.
Earnings season has so far resulted slightly better than expected. Most of the companies are reporting Revenues and EPS above expectations. However, the market has shown a highly sensitive behavior and focuses on the reported forecast guidance matching the expectations.
Meanwhile, there is a growing risk that persistent inflation in coming months could force the Federal Reserve to act more forcefully. The market could cause greater volatility and a possible correction.
Regarding Fixed Income, the U.S. Treasury curve has flattened with the spread between the 10-year and 2-year Treasury. It will narrow to 60bp while the 10-year rate closing flat near 1.78%. It seems likely that this situation will continue in the coming months within the process of monetary normalization that the Federal Reserve is carrying out.
In respect of Commodities, Crude Oil had the best return of the month (+16%) on strong consumption and rising geopolitical tensions between Russia and Ukraine while Gold ($1,799/oz) and Silver ($22,31/oz) fell -0.15% and 0.79%, respectively on rising real rates, as shown in the chart below:
Section 2 – Key Indexes Performance
During January, key US Indexes suffered significant losses which summarize the worst January performance for SP500 since 2009 8.43% decline.
SP500 declined 5.17%, mainly explained by poor performances in sectors like Real Estate (XLRE 9.25%), Consumer Discretionary (XLY -8.99%), Technology (XLK 6.60%) while Energy (XLE 23.01%) and Financials (XLF 1.41%) being the unique sectors showing a positive performance during the month:
Besides, both Nasdaq (NDX) and DJI also showed negative performances of -8.77% and -3.21,%, respectively having been influenced by the Fed hawkish speech which also hit small caps indexes such as Russell 2000 (IWM) (-10.12%):
Looking forward into next month and taking into account Fed comments. SP500 seems to have a correction to the price range of $4.348 to $4.261. This was reached during the last days of January and now is trying to bounce off. However, it is worth considering that over the past ten days, the index suffered an average outflow of more than $1 billion per day.
In relation with Nasdaq, the main feature described implies that 30% of the stocks are trading at 52-week lows, as shown in the picture below:
Section 3 – GreenGrowth Cannabis Indexes
The main objective of this section is to present two self-made Indexes called “GreenGrowth Cannabis Index 7 (GGCI7)” & “GreenGrowth Cannabis Index 25 (GGCI25)”. The indexes aim to track the most relevant cannabis companies in stocks markets. It covers not only public ones trading on USA/Canada but also Over the Counter (OTC)
For further information regarding Indexes construction methodology please see: Index Construction Methodology v1
On a monthly basis, we will track Indexes Price evolution to measure its performance.
On a quarterly basis, we will present a summary of each Indexes components’ Earnings Report. This report will analyze the most important figures regarding their Balance sheet, P&L, and financial ratios.
GreenGrowth Cannabis Index 7 current allocations are as follows:
Its initial price was calculated at $ 11,205.94 taking into account stocks closing prices for January 2022.
In addition, performing a 12-month back-testing the following charts shows the monthly Index Price evolution.
GreenGrowth Cannabis Index 25main current allocations are as follows:
Its initial price was calculated at $ 5,078.19 taking into account stocks closing prices for January 2022.
Stay tuned for next month’s cannabis public market review coming soon! To learn more reach out to our team of financial experts at GreenGrowth CPAs. We are here to help your cannabis venture through any level of the accounting, tax filing, or business cycle.
We employ several financial programs that can assist the company with its fiscal responsibilities including, tax planning and compliance, outsourced CFO support, audit preparation, tax controversy support, and much more.
For recommendations and assistance with tax planning and accounting services, schedule a free consultation or contact us at 1-800-674-9050.