Weekly Market Review & Analysis For October 4, 2021   

The S&P 500 market gained 0.8% this week after a challenging Monday session. Investors bought the dip and then breathed a sigh of relief when the Senate reached a debt-ceiling deal. The Dow Jones Industrial Average was the winner with a 1.2% increase, while the Nasdaq Composite gained just 0.1% and the Russell 2000 index fell 0.4%.

Eight sectors out of the eleven S&P 500 market(s) closed higher. Energy (+5.0%) led with a gain of 5%, and financials (+2.3%) increasing over 2%. These groups contributed to the Russell 1000 Value Index's (+1.2%) out-performance versus the Russell 1000 Growth Index (+0.3%). However, the real estate with 0.8%, health care with 0.3%, and communications services with 0.1% sectors finished in negative territory.

The market is facing many problems, including supply chain disruptions, inflation, and infrastructure. So lawmakers decided to address the debt ceiling. Thursday's Senate vote approved a bill to increase the debt ceiling by $480 million until December 3.

This news was the reason for the large portion of the 3.3% increase in the S&P 500 market between Wednesday's Mean Sup $4,307 and Thursday's Mean Res $4,389 and beyond. However, the benchmark index saw resistance halfway to the next Mean Res $4.454 (See Charts & Analysis tab). The risk sentiment was challenged on Friday after mixed September employment reports were released.

The September non-farm payrolls rose by 194,000 in September, making some believe that the Fed could delay its taper announcement beyond November. However, figures below the headline numbers support the case for tapering sooner than expected.

In particular, the private sector saw a 317,000 increase in payrolls, while August's unemployment rate was 5.2%. Average hourly earnings rose by 0.6%.

These were a result of inflation pressures resulting from supply-related constraints. Rising oil prices and interest rates further reflected inflation market concerns/expectations. WTI crude oil briefly reached $80 per barrel, while the Ten-year yield rose 15 basis points to close at 1.60%. 

Overseas market

Global equity market(s) had another weak week as bond yields remained stable and energy prices rose. Major global equity benchmarks have seen a 5% pullback from summer highs. These checks backs, which can't be called corrections by conventional wisdom rate of -10%, were are the most severe selloffs in months.

Evergrande, a Chinese property developer, was continuously feared. Still, concerns about the effects of electric power rationing on global supply chains and Chinese economic growth outweighed fears over its future. Although the Evergrande situation may not be over, the stock rose 25% to fund bond payments.

China's power outages have raised concerns about a slowing economy and extended disruptions to the global supply chain. Already, supply chains are reeling from the perfect storm of a seasonal demand surge and other disruptions - North American weather and wildfires and logistical bottlenecks, container shortages, and logistical bottlenecks.

Rising coal prices and scarcity are the leading causes of power outages. However, local authorities also ration electricity as the year ends, trying to reach central government energy reduction targets. Not surprisingly, most negative headlines about China over the past few months were orchestrated and not exogenous shocks.

It is possible to contain what was intentionally concocted, should it be necessary. Only hope can make it unlikely that one headline will become a policy accident (not uncommon) or that the authorities' tolerance for pain level differs from the capital market's.

Notably, European equities fared better in the recent stock market weakness and have so far avoided the -5% drawdown marking. 

Precious metals 

China returned from the Golden Week holiday, and voila! No more gold short pounding during Asian hours. Because the Chinese kept buying more gold than ever, gold rose as soon as Hong Kong opened.

Overnight Friday's market was quiet, but gold traded up to the upside. Then it jumped sharply higher after Friday's crucial nonfarm payrolls miss. It was up over $25 hitting a $1,781 high; however, it closed marginally higher. Silver was up over 60¢ at finishing at $22.65, up 7.5¢.

Bitcoin market

Bitcoin keeps on going! The cryptocurrency briefly touched $56,000, equivalent to €48,400. Optimism is back in the market, as bitcoin hit its highest level since May. 

October has gotten off to a great start. The price of bitcoin has increased by over 15% since the beginning. The price is now almost back at the September 7th level, when El Salvador adopted bitcoin as a payment method.

There is another significant development, however. The bitcoin hash rate has returned at levels not seen since 2020's end. This is a significant development, according to Blockchain analysis firm Glassnode after China banned bitcoin mining.

What is the hash rate? 

Bitcoin miners solve cryptographic puzzles by adding transaction blocks to the blockchain. They receive a fixed amount in bitcoin and transaction fees for each transaction as a reward.

The more secure bitcoin is, the higher the hash rate. It would be best if one had at least half the hash rate to hack the bitcoin network. This is known as a 51% attack. It is almost impossible to hack the coin as an individual as it is so high at the moment.

Bitcoin's hash rate has nearly recovered right now. This is amazing, considering that approximately half of all bitcoin miners had to shut down in May. These miners may have sought refuge elsewhere, including on European and North American market(s).

Glassnode data shows that the hash rate total has increased by 39% by the end of July 2021. This is the most significant increase since December 2018. The hash rate is currently at the same level as it was at the end of 2020.

Bitcoin mining revenue on the rise

The bitcoin halving resulted in miners' rewards being cut in half last year. Instead of receiving 12.5 BTC per transaction block, miners now receive 6.25 BTC.

This had a short-term effect on miners' revenue, which was reduced by half in the U.S. Dollars. However, income is rising again as the bitcoin price rises and the bitcoin blockchain becomes more crowded. In September, miners made between $40 and $48 million daily in profits. At the end of May, the record for daily profit reached an unbelievable $60 million.

So, what's driving this price increase? Some analysts argue that the main reason is an upcoming bitcoin ETF market that could increase the price. Will we get a new all-time high next week? Stay tuned.

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