Bitcoin Soars While Stocks Trade Flat

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Bitcoin Soars While Stocks Trade Flat

Major Moves

When I examine a bitcoin chart, it reminds me of 2017, when the digital currency increased from $3,000 to $19,666 in the fourth quarter. At the time, investors flocked to the digital asset, driving prices even higher out of a typical bubble-like fear of losing out.

The price of bitcoin has increased by 50% since Investopedia Editor in Chief Caleb Silver last wrote about it in the Market Sum on last Tuesday. This is because more people are buying into the virtual currency. The current increase, in my opinion, was mostly influenced by Facebook, Inc.’s (FB) statement that it will be joining the virtual currency market with “Libra.”

Although Libra is still a long way off from being a reality, it has given cryptocurrency supporters a lift and helped to drive bitcoin back over $14,000 today. But I’m curious to what extent the current movement in bitcoin is connected to the simultaneous change in favor of safe-haven currencies like the Swiss franc and the Japanese yen.

Rising geopolitical dangers in the past, such as intensifying hostilities between the United States and Iran, have boosted these safe havens, which may also benefit bitcoin. I also believe that the current demonstrations and instability have considerably increased demand for bitcoin since there has been such a high level of curiosity in China and Hong Kong.

For the time being, this will be an interesting chart to observe since we have so little historical information on cryptocurrencies to inform our forecasts. Technically, this trend is so close to a vertical asymptote that projections would be challenging, but as it approaches the previous highs, I believe investors should be on the lookout for a sudden reversal as traders who held during the price collapse in 2018 start to recover their losses by selling.

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S&P 500

After yesterday’s selling, the S&P 500’s own bullish breakthrough is still holding steady. Small-cap stock weakness has persisted over the last week, suggesting that the S&P 500 index’s recent short fresh highs may not yet represent a genuine breakthrough.

If success is not achieved in this week’s trade negotiations at the G-20 conference, President Trump warned today that he has a “Plan B” in place that would include billions more in tariffs being imposed on American companies and importers of Chinese products. Investors may have dismissed the danger since there were no more specifics provided, but if this week brings any fresh negative news, I predict that risk will assist sellers get motivated.

A somewhat better-than-expected earnings report from FedEx Corporation (FDX) yesterday afternoon may have a beneficial effect on transportation companies. If a surge in transportation and shipping stock prices occurs, it may assist July’s mood improve.

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Risk Indicators – Earnings Reactions Can Be Misleading

I was let down by the Paychex, Inc. (PAYX) report this morning in terms of risk. The stock underperformed earnings forecasts, which decreased the estimate for profits growth over the next fiscal year from the 9.2% analyst average to 8% to 9%. At today’s closing, the stock had lost more than 3.5%.

I would counter that this does not seem to be a worrying leading signal for the overall employment market or the economy. As you can see in the accompanying chart, from a technical standpoint, Paychex has been developing a long-term bearish divergence using the moving average convergence divergence (MACD) indicator, which often indicates that the stock was momentarily overbought. It doesn’t take much to convince investors to sell in a circumstance like this.

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Additionally, a stock in the employment sector growing by 8% to 9% would still be a highly strong sign for the economy. These are the kinds of data we would anticipate when the economy is still in good shape, even if the pace of growth may be decreasing.

When paired with Micron Technology, Inc.’s (MU) unexpectedly upbeat earnings report, the FedEx and Paychex reports continue to speak to an economy that is not yet in a crisis. In Micron’s instance, the business improved its view for the remainder of the year, which could assist in resuming the upward trend in tech equities, particularly semiconductors.

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Bottom Line – Earnings Overshadowed by Trade Talks

Before the quarterly season officially begins in July, a few early quarterly reports will continue to come in, and what we have already seen seems to be generally positive. Even some of the large negative swings in equities like General Mills, Inc. (GIS) and Paychex, which have had some disappointments as growth has slowed, continue to reflect extremely high underlying growth rates.

A positive profits projection comes with the caveat that much depends on the outcome of trade negotiations with China. Investors should anticipate learning more as the weekend approaches, which is likely to keep market averages range-bound on Thursday.

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Bond ETFs are approaching record inflows as investors sell their hedge funds.

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