Analyst Note: Macro Check-In

How are you doing, anon? It's been a tough year. Risk assets have had a rough go of it in 2022. Stocks are down ~20% year to date, while Bitcoin and Ethereum are down ~60%. Yet since July, crypto prices are up in the face of a steeply declining macro backdrop. Rejoice!

Still, even the most ardent crypto supporter would agree it will be challenging for the asset class to have sustained momentum against the specter of a global recession. Crypto has continued to have a strong correlation to the broader macro environment, particularly if we look at baseline alternatives like real yields (interest rates adjusted for inflation).

With that in mind let’s take a tour around the macro landscape to see where we stand today and where we may be headed for the rest of 2022.

Company Earnings

Investors understand monetary policy is tightening, but they are closely watching how companies are responding to these changes. When buying a stock, you are technically buying its earnings into perpetuity. The aggregate of these earnings across companies can help tell us if the market is over- or under-valued. Historically, the S&P 500 is roughly valued at around 15x on a price-to-earnings (P/E) basis. Looking at extremes, the dotcom cycle had the S&P 500 peaking in September 1999 at ~22x for forward earnings and ~30x for trailing earnings. Valuations on a P/E basis are now in line with the median over the last 40 years.