Bitcoin Sends Warning That Stock Market Is About to Sell Off, Says Stifel

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• Bitcoin’s 10% sell-off since June 7 serves as a warning for the stock market as a whole.

• 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 and longer interest rates.

Bitcoin The 10% selloff since June 7 sends a wake-up call to the stock market as a whole, 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 more of the characteristics of a risky speculative asset than “digital gold”.

But while bitcoin traded lower in June to around $65,000, the stock market as a whole continues to hit new record highs, thanks to gains in large-cap tech stocks like Nvidia And Apple.

Bitcoin’s failure to reach new record highs suggests that the stock market is likely to catch up, as it is poised to decline in line with the cryptocurrency, according to the note.

“Recently, the weakening of bitcoin signals imminent risk S&P500 summer phase of correction and consolidation,” Bannister said.

Bannister is not the only Wall Street analyst to take inspiration from Bitcoin for the stock markets.

Fairlead Strategies founder Katie Stockton told CNBC on Monday that she is also watching the growing divergence between U.S. tech stocks and bitcoin.

“When we see Bitcoin pulling back in this setting and the Nasdaq 100 just going up, that worries us to some extent, just in the short term,” Stockton said. “We think this divergence is something that will probably eventually catch up with the Nasdaq 100 Index as soon as people say ‘well, wait a second, Nvidia may be overextended here.’

Adding to Bannister’s belief of an impending stock market selloff is the Federal Reserve, which could keep interest rates higher for longer to combat persistently high inflation.

“The correction we expect in risk assets is reinforced by our view that the Fed would abandon its dovish and cautious stance while inflation remains high (“last mile” problems), thus exposing the S&P 500 to be overvalued relative to financial markets. working conditions index and other measures,” Bannister said.

In a summer correction scenario, Bannister believes high-flying tech stocks like Nvidia will be hit hardest, as analysts’ forward earnings estimates show signs of a spike.

“As NVDA follows past cycles, the rising leader could lead the 3Q24 correction lower,” Bannister said.

The story continues

But Bannister admitted he might be ahead of the curve in his call for a market correction because bubbles often march to the beat of their own drum.

It’s possible that stocks will continue to rise before experiencing an even more painful decline of around 20%.

“Past bubbles since the 19th century indicate that the S&P 500 may well reach ~6,000 by the end of 2024, then circle back to the point where 2024 began five quarters later, by ~ 1Q26 (S&P 500 ~ 4,800),” Bannister said.

Read the original article on Business Insider

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