Stable baselines first, crypto parties behind | Wilnesh News
The market is beginning to beckon for relaxed mullet hairstyles: business in the front, party in the back. The overall benchmark stock index has been performing well, holding steady in an orderly uptrend and barely making a false move in weeks. After days of post-election gains that brought year-to-date gains to 25%, the S&P 500 has consolidated, falling back to pre-election highs not seen in October before rebounding 1.7% last week. Most stocks have been positive contributors, with leadership continuing to pivot to financials and cyclical stocks in anticipation of a resilient economy, expanded earnings growth and the potential for expansionary policies under the new Trump administration. Then there’s the risky, adrenaline-fueled world of markets, starting with Bitcoin and crypto leveraged stocks and extending to reawakening penny stocks, crowded short situations, leveraged ETFs, and boom and bust unproven or emerging soft names From early 2021 through most of this year. All planes have been flying in recent weeks. The biggest sponsor of the gathering was inevitably Bitcoin. It’s up 40% this month, approaching $100,000, amid attacks from the faithful and a feast of supportive headlines about the incoming administration blessing the asset class. BTC.CM= YTD mountain Bitcoin, YTD Every bullish argument for Bitcoin boils down to “more people will soon have more ways to buy more Bitcoin.” It’s working for now. The chart is entering a red-hot overbought state, and just as families are getting ready to express their gratitude and talk about money-making ideas, the price is surging into a big round number. Bitcoin appears to be feeding off of the pool of aggressive, mission-driven capital that has helped fuel the rise of Nasdaq large-cap stocks over the years. I have been tracking the interaction between Bitcoin and Nvidia stock for some time. The two companies were in lockstep from mid-2023 until this spring, when Nvidia kept raising its profit forecasts. NVDA Mountain 2023-06-30 Nvidia, Bitcoin now appears to be in a violent catch-up move since June 30, 2023, which may have taken away some of the energy from Nvidia stock, which last week reported earnings expectations and strong guidance and ended unchanged. The market’s first reaction was simply to allow Nvidia to retain the $2.3 trillion in market capitalization it gained this year, but not to add more. MicroStrategy Party Cryptocurrency Public Stocks is where the festivities get a little crazy. Vanda said MicroStrategy has become a leveraged Bitcoin vehicle, selling billions of shares of stock and convertible bonds to accumulate more Bitcoin, a self-reinforcing cycle of enthusiasm and financial engineering that nets retail traders Buying volume tripled from just a few days ago, reaching a peak on Wednesday. “It’s early days, but with the Trump-Musk combo at the helm of the U.S. economy and classic meme stocks like MSTR rising exponentially, we may need to start paying close attention again,” the company told clients last week. Retail-driven meme stocks squeeze flow. MicroStrategy’s stock surged to more than 200% above its 200-day average, and its market cap topped $100 billion, noted John Roque, senior technology strategist at 22V Research. , which is three times the value of his Bitcoin holdings. He bluntly said that this “is a price bubble.” Of course, that doesn’t mean it has to fall immediately, although Thursday’s 32% drop from the session high to the low hints at such a volatile move, revealing some fragility. MSTR YTD mountain MicroStrategy, YTD If this stock is too dovish, there are a few leveraged ETFs tied solely to MicroStrategy stock, including one that trades under MSTU, whose trading volume has more than doubled this month. A Bloomberg report late last week said fund sponsors scrambled to replicate promised returns through options when their prime brokers were constrained in their willingness to provide exposure through swaps. Across the market, the ratio of assets in leveraged long stock ETFs to assets in short ETFs is now near an all-time high, with the previous high in late 2021, according to a chart from SentimenTrader. As you can see from Strategas’ chart, overall net inflows into equity ETFs are near multi-year highs on a rolling three-month basis. It should be noted that the previous peak was in early 2021, a full year before the bull market peaked, and the S&P 500 has risen nearly 50% or so since then. This means that the current rate of new money entering these funds relative to total market capitalization is not as large as it was nearly four years ago. To some extent, the aggressive, not to mention reckless, actions taken by the market’s fast-moving vehicles are just bull markets flexing their usual muscles. Since “quality” stocks have been trading higher and fully valued for much of the past two years, this “flight to quality” may at least be viewed as a mean-reversion reflex following the release of election tensions. These bubbles will eventually boil over, making the foundation dangerous, but there’s nothing to suggest that moment has arrived, or is even imminent. Benchmarking All Business The fact that core large-cap benchmarks remain on a fairly tight, controlled rally stands in stark contrast to any accusations of rampant and dangerous enthusiasm. Rising profits, interest rate cuts from the Fed, real GDP growth above 2%, tame credit spreads, favorable seasonality – all now put the burden of proof on the short sellers. None of this says anything about whether the market has achieved its goal of a bullish macro outlook, or whether the S&P’s generous 22 times expected earnings have largely priced in that. Maybe it’s something that needs to be addressed in 2025. What we do know is that Wall Street strategists are rapidly raising their official index targets for next year. Among companies issuing 2025 outlooks, the S&P 500 is expected to rise nearly 11% to 6,600 points. 3Fourteen Research co-founder Warren Pies charted year-end revisions to strategists’ targets and said that if consensus holds around 6,600, “this would be the most optimistic year-end move strategists have ever made.” Although the target is well below the end of 2024 current index levels and entering the third year of a historically stingy bull market, this is not a runaway prediction. According to most positioning and survey efforts, market sentiment is becoming quite optimistic, if not universally extreme. Even extreme situations like this usually don’t do any damage to the market at the end of the year. But as the new year approaches, file it away. And keep an eye out for the party behind.
