3/10/2025

Good Morning.

The U.S. economy added 151,000 jobs last month below the 160,000 expected. Unemployment rose to 4.1% from 4.00%.  

Fed Chair Powell “We are focused on separating the signal from the noise as the outlook evolves” referring to waiting for more data before making an additional interest rate cut.

The S&P 500 has wiped out all its gains experienced since the presidential election. Investors are uncertain about interest rates, economic growth, and importantly the effect of tariffs. Strong Corporate earnings are essential to justifying and increasing equity values however major U.S. companies could suffer from tariffs. “Risks are rising, and we’re starting to question the potential rockiness in the economy” (RBC Capital Markets Lori Calvasina)

The Nasdaq index is composed of the biggest tech companies that were responsible for leading market growth. It has lost 10%  in 17 days as investors pull away from big tech.

(NASDAQ Dec 16 all time high $20,173 - March 7 $18,190)

In today’s newsletter we will cover: 

• Markets

  • U.S. Equities Decline

  • Tariff Tensions

  • Dollar Depreciation

  • Europe Cuts Again

  • CPI Ahead

• Millennium Management $900 B Loss

• Money Market Funds Record Size

• Which is which? Understanding the U.S. Bitcoin Reserve

• What to look out for this week!

Markets 

• U.S. Equities Decline: Trade tensions pressured the market, leading the S&P 500 to its third consecutive weekly decline and its steepest drop since last September. The index posted a -3.1% total return, slightly outperforming the NASDAQ's -3.4% loss, while the Dow slipped 2.3%.

• Tariff Tensions: Trade conflicts rattled financial markets after the U.S. imposed 25% tariffs on most goods from Canada and Mexico on Tuesday, while also increasing duties on Chinese imports. In response, all three key trading partners retaliated with their own tariffs, prompting U.S. officials to temporarily suspend some levies on Canadian and Mexican goods, including automobiles, for a month.

• Dollar Depreciation: The U.S. dollar weakened notably, with its value against a basket of major currencies declining 2.4% for the week as of Friday afternoon—its steepest weekly drop since November 2022. In contrast, the euro surged, marking its largest weekly gain against the dollar since 2009, following announcements of increased stimulus spending by European governments.

• Europe Cuts Again: European stocks rallied on Thursday after the European Central Bank implemented its sixth consecutive rate cut. The decision came amid sluggish economic growth and escalating geopolitical tensions, prompting policymakers to boost spending on infrastructure and defense.

• CPI Ahead: The upcoming Consumer Price Index (CPI) report, set for release on Wednesday, will reveal whether the recent trend of slightly higher-than-expected inflation persisted into February. The latest CPI data showed core inflation—excluding energy and food—rising 3.3% year over year in January, surpassing economists’ expectations and edging above the previous month’s figure.

Millennium Management $900 M Loss

• Millennium Management is one of the worlds largest hedge funds with $75B in AUM. It has an incredible track record regarding risk management. It has only lost money one year since 1989 and has not lost more than 1% in a month since 2018. The firm employs multiple strategies with many investment teams. It has strict rules on the performance of these teams and will quickly terminate teams of portfolio managers who lose money.

• Millennium has a team of traders who make index rebalancing trades. Index rebalancing is highly leveraged and is a strategy that makes bets on which stocks will be added to or exit indexes. The “Index Effect” is the increased price of a stock when it's added to an index. Demand is increased from institutional investors'  seeking to rebalance their portfolios and passive inventors following the news. The opposite is for stocks that are removed from an index.

• This strategy and team in the past has been responsible for billions in gains for Millennium.

• This strategy has recently suffered from market volatility and poor bets on which stocks would be added or removed from indexes. The two teams responsible for this strategy have lost $900 M in the past month. 

(McKinsey & Company explanation of Index Effect)

Money Market Funds Record Size

• Money market funds invest in short term debt like government bonds. They pay an average of 4.16% (Crane 100 Money Fund Index).  

• When the Fed raised interest rates in 2023 inflows rapidly grew as investors could receive greater returns and defend themselves against volatility.

• Investors have flocked to to these funds with $51 B inflows in the first week of March and have reached a record size of $7.03 T

(Barrons)

• “Recent strong inflows may be a response to the spike in volatility in the financial markets we’ve seen lately” (ICI Chief Economist Shelly Antoniewicz)

  • Once again another example of investors uncertainty regarding a changing economic backdrop 

• Investors seeking to diversify away from volatile equity markets are finding high yield and liquid money market funds attractive. 

• Inflows for money market funds are significantly outpacing equities. A potential signal that investors sentiment towards equites is diminishing.

(Reuters)

Which is which? Understanding the U.S. Bitcoin Reserve

• The United States government has officially created a National Bitcoin Reserve under an executive order signed by President Donald Trump. This decision carries major implications for the cryptocurrency market and the country’s economic strategy. However, with various reserves being discussed, it’s important to distinguish the correct U.S. Bitcoin Reserve. This week, the digital asset market segment will help clarify the details.

1. The National Bitcoin Reserve (Executive)

• The reserve will be initially funded with approximately 200,000 BTC (valued at around $18 billion), which the government had seized in past criminal and civil asset forfeiture cases. Importantly, these holdings will not be sold, addressing concerns about market sell-offs from government-held Bitcoin. Furthermore, the Departments of Treasury and Commerce have been authorized to explore budget-neutral strategies to acquire additional Bitcoin. This means they cannot use taxpayer funds but may reallocate existing assets, such as selling gold or using budget surpluses, to purchase more BTC. While some market participants had anticipated more aggressive Bitcoin purchasing strategies, this announcement led to a "sell the news" reaction, similar to the market response after the July Bitcoin conference.

President Trump and Crypto Czar David Sacks at the White House Crypto Summit (Source)

2. Senator Lummis’s Bitcoin Legislation (Legislative)

• A key development in securing the permanence of the Bitcoin Reserve is the introduction of the BITCOIN Act of 2024 by Senator Cynthia Lummis. This bill seeks to:

• Codify the executive order into law, ensuring that the Bitcoin Reserve remains intact even if a new president takes office.

• Allow the U.S. government to acquire up to 1 million BTC over the next five years, which would represent approximately 5% of the total Bitcoin supply.

• Require congressional approval for any future changes to the reserve’s status.

• If passed, this legislation would cement Bitcoin’s role in U.S. financial strategy for the long term.

3. U.S. Digital Asset Stockpile: The Fate of Altcoins

• Apart from Bitcoin, the U.S. government also holds a variety of altcoins, including Ethereum (ETH), Cardano (ADA), Solana (SOL), and Ripple (XRP). These assets will be managed separately under a newly created U.S. Digital Asset Stockpile.

Key takeaways regarding this development:

• The Department of Justice (DOJ) will transfer management of these assets to the Department of Treasury.

• There are no plans to acquire additional altcoins, and no commitments have been made regarding whether they will be held or sold.

• Final decisions on these assets will be made by President Trump.

• While some had hoped for an altcoin reserve, Trump’s commitments have focused primarily on Bitcoin. Nonetheless, the structured management of these digital assets is a step forward in government crypto policy.

4. The Sovereign Wealth Fund and Crypto Investments

• The U.S. Sovereign Wealth Fund, managed by the Department of Commerce, remains an independent entity. While it could potentially invest in cryptocurrencies, there has been no official confirmation or policy announcement regarding its involvement in digital assets.

• The U.S. government's stance on Bitcoin is evolving, with clear support for maintaining a strategic reserve. However, the lack of aggressive purchasing and the uncertainty surrounding altcoins and sovereign wealth fund involvement indicate a cautious approach. The passage of Senator Lummis’s legislation will be crucial in determining the long-term role of Bitcoin in national financial strategy. For cryptocurrency investors and financial analysts, these developments signal increased institutional legitimacy for Bitcoin but also highlight regulatory and legislative hurdles that will shape the market in the years ahead.

What To Look Out For This Week!

Monday: Vail resorts and Oracle report earnings

Wednesday: Consumer Price Index 

Thursday: Initial jobless claims

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Founders: Ben Banchik, Zachary Singer

Additional Contributors: Willam Le

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