By Barbara Kollmeyer
And Nvidia could lead the stock market lower
Bitcoin has struggled to recapture high ground from earlier this year, and that could bode poorly for the stock market.
So says Stifel’s chief equity strategist Barry Bannister and his team, who offer the following chart that shows the S&P 500 index tends to be flat six months on from bitcoin peaks, with other such cycles indicating a drop in the index:
Stifel and his colleagues note that bitcoin (BTCUSD) has struggled to recapture an all-time high it reached in March. The cryptocurrency was trading around $66,012 on Thursday, more than 10% below its most recent high of $73,462.59 on March 13, 2024, according to FactSet.
The analysts say that since 2011, dovish Federal Reserve monetary policy pivots have been a primary factor behind major bitcoin bull markets – crypto shares a Fed sensitivity with big tech stocks. “Excess liquidity in the wake of the large COVID hand-outs…has caused bitcoin to correlate with the Nasdaq-100 since 2020, but recently the weakening of bitcoin signals an imminent S&P 500 summer correction and consolidation phase,” they said.
That stock pullback is backed up by Stifel’s view that the Fed is likely to shift away from a dovish stance “as inflation remains high, thereby exposing the overvalued S&P 500 vis-à-vis the financial conditions index and other measures.”
And Nvidia (NVDA) and other big tech stocks “seem to us especially vulnerable,” to a correction in the third quarter, giving up its role as a leader in stock gains this year. In that respect, Stifel offers this chart showing how they see analysts revisions to Nvidia adjusted earnings, which the stock tracks, possibly now hitting a wall:
But a correction could also bypass this market, they say.
“Timing is everything, however, and we are aware that investors may be in full-fledged bubble/mania mode which looks past our concerns (AI this time, the internet before, the paramount U.S. consumer before that with the Nifty Fifty, radios, steel, autos and electric power before that in the late 1920s, and so on),” they said.
“Past bubbles since the 19th century indicate the S&P 500 could well rise to [approximately]6 ,000 at year-end 2024 and then round trip to near where 2024 began five quarters later, by [approximately the first quarter of 2026],” leaving the S&P 500 at 4,800, said Stifel strategists, offering one last chart:
-Barbara Kollmeyer
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