Bitcoin’s Signal Indicates Impending Stock Market Sell-Off, According to Stifel

Bitcoin’s recent 10% decline since June 7 is raising concerns for the broader stock market, according to Stifel strategist Barry Bannister. In a note on Wednesday, Bannister pointed out a significant correlation between bitcoin and the Nasdaq 100, emphasizing that bitcoin behaves more like a speculative risk-on asset rather than “digital gold.”

While bitcoin has seen a drop in June to around $65,000, the overall stock market continues to achieve new record highs, primarily led by gains in mega-cap tech companies such as Nvidia and Apple. The fact that bitcoin has not reached new highs suggests that the stock market is likely to follow suit and experience a decline in line with the cryptocurrency.

Bannister expressed his belief that the weakening of bitcoin indicates an upcoming summer correction and consolidation phase for the S&P 500. He is not alone in drawing insights from bitcoin for the stock market. Katie Stockton, founder of Fairlead Strategies, highlighted the widening gap between US tech stocks and bitcoin, indicating a potential convergence in the near term.

The Federal Reserve’s stance on keeping interest rates higher for an extended period to combat persistent inflation further supports Bannister’s view of an impending stock market correction. He anticipates a scenario where high-flying Big Tech stocks like Nvidia could face significant impact, especially as analysts’ forward earnings projections show signs of peaking.

In considering past market cycles, Bannister suggests that Nvidia, as a leader on the way up, may also lead the correction in the third quarter of 2024. However, he acknowledges the possibility of being early in predicting the market correction, as historical patterns show that bubbles tend to expand before undergoing a substantial decline.

Bannister reflects on past market bubbles dating back to the 19th century, indicating that the S&P 500 could potentially rise to around 6,000 by the end of 2024 before retracing back to approximately 4,800 by the first quarter of 2026. This historical context suggests that despite the current market dynamics, there could still be room for further upside before a significant downturn occurs.