Bitcoin
Bitcoin Price Action Sends Warning Signal of Stock Market Selloff Soon
- Bitcoin’s 10% sell-off since June 7 signals a wake-up call 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 longer.
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Bitcoins 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 the Nasdaq 100 since 2020, as cryptocurrency shares characteristics of a risky speculative asset, it more than behaves like “digital gold”.
But while bitcoin traded lower in June to around $65,000, the broader stock market continues to hit new records, driven by gains in mega-cap technology stocks such as Nvidia It is Litter.
Bitcoin’s inability to reach new records suggests that the stock market will likely try to recover as it is poised to fall in line with the cryptocurrency, according to the note.
“Recently, the weakening of bitcoin signals an imminent S&P 500 summer correction and consolidation phase,” Bannister said.
Bannister isn’t the only analyst on Wall Street taking stock market cues from bitcoin.
Fairlead Strategies founder Katie Stockton told CNBC on Monday that she is also watching the growing divergence between U.S. technology stocks and bitcoin.
“When we see bitcoin pulling back in this picture and the Nasdaq 100 just rising, that concerns us to some extent, just in the short term,” Stockton said. “We feel like this divergence is something that’s probably going to catch up with the Nasdaq 100 once people say ‘well, wait a second, Nvidia is maybe a little overextended here.’
Adding to Bannister’s conviction of an imminent stock market sell-off is the Federal Reserve, which could keep interest rates higher for longer to combat still-high inflation.
“The correction we expect in risk assets is reinforced by our view that the Fed moves away from its current cautious moderation as inflation remains elevated (‘last mile’ issues), thus exposing the overvalued S&P 500 vis-à-vis -vis the financial condition index and other measures,” Bannister said.
In a summer correction scenario, Bannister sees shares of big tech companies like Nvidia being hit the hardest as analysts’ future earnings estimates show signs of peaking.
“As NVDA follows past cycles, the rising leader could lead the downward 3Q24 correction,” Bannister said.
But Bannister admitted he may be ahead of schedule in his call for a market correction, as bubbles often march to the beat of their own drum.
It’s possible the stock could continue to rise before suffering an even more painful decline of about 20%.
“Previous bubbles since the 19th century indicate that the S&P 500 could very well rise to ~6,000 by year-end 2024 and then back and forth to near where 2024 began five quarters later in ~1Q26 (S&P 500~ 4,800),” Bannister said.