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Bitcoin price action sends warning signs of a stock market sell-off soon
- Bitcoin’s 10% sell-off since June 7 signals a warning for the broader stock market.
- Stifel strategist Barry Bannister highlighted a strong correlation between bitcoin and the Nasdaq 100.
- Bannister said he expects a summer correction in stocks, influenced by higher interest rates for a longer period.
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That of Bitcoin The 10% sell-off since June 7 is sending a warning signal to the broader stock market, according to Stifel strategist Barry Bannister.
In a note on Wednesday, Bannister highlighted the strong correlation between bitcoin and Nasdaq100 since 2020 as the cryptocurrency shares the characteristics of a risky speculative asset more than it behaves like “digital gold”.
But while bitcoin traded lower in June to around the $65,000 level, the broader stock market continues to hit new record highs led by gains in mega-cap tech stocks like Nvidia AND Apple.
According to the note, Bitcoin’s failure to reach new record highs suggests that the stock market is likely to be catching up as it is set to decline in line with the cryptocurrency.
“Recently the weakening of bitcoin signals an imminent S&P500 summer correction and consolidation phase,” Bannister said.
Bannister isn’t the only Wall Street analyst taking cues from the bitcoin stock market.
Fairlead Strategies founder Katie Stockton told CNBC on Monday that she too is monitoring the growing divergence between U.S. tech stocks and bitcoin.
“When we see bitcoin pull back in this framework and the Nasdaq 100 just go up, that worries us to some extent, just in the short term,” Stockton said. “We have a feeling that that divergence is something that will eventually probably catch up with the Nasdaq 100 index as people say ‘well, wait a second, Nvidia is maybe a little overloaded here.’”
Adding to Bannister’s belief in an impending stock market sell-off is the Federal Reserve, which may keep interest rates higher for longer to combat still-high inflation.
“The correction we expect for risky assets is strengthened by our view that the Fed will move away from its current cautious stance at a time when inflation remains high (last mile issues), thus exposing the S&P 500 to be overvalued relative to the financial index. conditions index and other measures,” Bannister said.
In a summer correction scenario, Bannister expects top-tier Big Tech stocks like Nvidia to be hit hardest as analysts’ future earnings estimates show signs of spiking.
“As NVDA tracks past cycles, the rising leader could lead the 3Q24 correction down,” Bannister said.
But Bannister admitted he may be early in calling for a market correction as bubbles often march to the beat of their own drum.
It’s possible that shares will continue to rise before suffering an even more painful drop of around 20%.
“Past bubbles dating back to the 19th century indicate that the S&P 500 could rise to ~6,000 at the end of 2024 and then return to near where 2024 began five quarters later, by ~1Q26 (S&P 500 ~4,800),” Bannister said.