Analyst Links Bitcoin's Highs to Potential Stock Market Downturn

A recent analysis from Stifel's equity strategist, Barry Bannister, suggests that the fortunes of bitcoin could have broader implications for the stock market.

by Faruk Imamovic
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Analyst Links Bitcoin's Highs to Potential Stock Market Downturn
© Getty Images/Dan Kitwood

A recent analysis from Stifel's equity strategist, Barry Bannister, suggests that the fortunes of bitcoin could have broader implications for the stock market. With bitcoin reaching near-record highs, the question arises: what does this mean for traditional investments?

Bitcoin and the Stock Market: A Tenuous Link

Bitcoin's price soared to an all-time high of approximately $73,800 on March 14, stirring excitement and speculation among investors.

However, as of Thursday, the cryptocurrency had settled at around $67,600, prompting analysts to ponder the implications of its recent performance. Bannister's analysis points to a correlation between bitcoin's surge and a dovish pivot from the Federal Reserve, suggesting that the cryptocurrency's peak might signal the end of the current bull market in stocks.

"Bitcoin & NASDAQ 100 reflect the speculative fever fostered by cheap money after dovish Fed pivots, such as occurred in the fourth quarter of 2023," Bannister explained. He further elaborated that the pattern observed in bitcoin's price, especially when analyzed through a logarithmic chart with a polynomial trend, indicates a potential peak at the $73,000 mark.

Such a peak, according to Bannister, could have negative repercussions for the broader stock market, particularly affecting mega-cap tech stocks and the Nasdaq 100 in the months ahead.

Implications for Mega-Cap Tech and Investor Sentiment

Bannister's findings suggest a direct impact on investor sentiment and the performance of mega-cap tech stocks, which could lead to a downturn in these sectors.

This shift might pave the way for value stocks to outperform growth stocks, a trend that has been on the horizon but has yet to fully materialize. The analysis raises concerns about a potential pullback in the S&P 500, contrasting with the performance of the equal-weighted S&P 500 over the next half-year.

The looming question revolves around the Federal Reserve's policies. The central bank's dovish stance in late 2023 played a significant role in boosting stock and crypto markets. However, Bannister warns that this could reverse if signs of strong economic growth or persistent inflation emerge, challenging the Fed's current position.

"Without clear signs underpinning the Fed bullish shift in 4Q23, the market may have adopted a political interpretation," Bannister noted, emphasizing the importance of investors' perceptions in these dynamics.

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