Stocks, Crypto up as U.S. Dollar Softens: How 2023 Kicked off Markets

The stock and crypto markets are off to a good start in 2023. The Nasdaq 100 and S&P 500 are up 6% and 4.5% YTD, while some major cryptocurrencies, including Bitcoin and Ethereum, have delivered double-digit gains this year so far. Gold and U.S. Bonds have also increased by 4% and 2%.

On the other hand, the U.S. Dollar has continued weakening as expectations of smaller rate hikes from the Federal Reserve have improved investor risk appetite.

Stock Market, Crypto Surges Higher

The stock market had a lackluster performance in 2022. The S&P 500 finished the year down 19%, and the Nasdaq lost 33%, with some tech giants falling to earth. As per a report, the 10 top tech stocks lost a combined $4.6 trillion in market cap last year, with Amazon (NASDAQ:AMZN) leading the way by losing nearly half its market value.

After a dismal performance last year, stocks have started 2023 on an upswing. The Nasdaq 100 and S&P 500 are up 6% and 4.5% year-to-date. Furthermore, about three-quarters of the stocks in the S&P 500 index have gained more than 20% from their 52-week lows.

Gold and U.S. bonds have also increased by 4% and 2%. The crypto market has also surged higher, with major cryptocurrencies breaking above key resistance levels and extending their rallies.

Bitcoin, the world’s largest cryptocurrency, has reached a local high of above $21,300 while Ethereum has climbed to around $1,600. Both coins have gained around 20% over the past week.

Cooling Inflation, Low Unemployment Shore Up Investor Confidence in Markets

Inflation cooled down in December for the sixth month in a row, dropping to 6.5% compared to the November CPI of 7.1%. Core CPI, which does not take volatile food and energy prices into account, fell to 5.7% from 6% in November.

The faster inflation falls, the more likely it is that the Federal Reserve will slow down rate hikes since its goal is to bring it back down to 2%. Fed Chair Jerome Powell has said that rates would remain elevated until inflation reaches that goal, suggesting that another three-quarters of a percentage point hike in 2023 is coming.

However, the benchmark 10-year Treasury Note has fallen substantially from its October peak at 4.33% to 3.45%. That shows that investors believe elevated interest rates are not lasting, which could signal that stocks have become more attractive.

The December jobs report also showed unemployment remaining low but wage growth slowing. In December, the U.S. economy added 223,000 jobs, bringing the 3-month moving average to 247,000, the Department of Labor reported. The unemployment rate fell to 3.5%, further supporting bullish sentiment for risk assets.

Meanwhile, the U.S. Dollar has continued weakening this year. The greenback is now more than 10% below its peak in September 2022, which is good news for investors as a softer dollar typically supports risk assets.

This is specifically true about cryptocurrencies, which usually fall as the dollar strengthens. Bitcoin’s correlation with the dollar has been mostly negative over the past year, falling to as low as -0.6 in early January before rebounding to -0.4 last week.

As of now, Bitcoin is trading at around $21,100 while Ethereum is hovering near the $1,500 mark, both almost flat over the past day. Meanwhile, the S&P 500 ended the latest trading day up by 0.4%, closing at 3,999.

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This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.