Bitcoin's recent weakness signals an imminent S&P 500 correction, according to Stifel

Published Fri, Jun 21 202410:02 AM EDTUpdated Fri, Jun 21 20241:16 PM EDT

Bitcoin's recent weakness could be signaling an upcoming correction in stocks, according to Stifel's chief equity analyst Barry Bannister. Bitcoin reached its all-time high of $73,797.68 on March 14 before quickly correcting, and it has struggled to hold the $70,000 mark since, barring a handful of blips. On Thursday, the S & P 500 briefly touched 5,500 for the first time after notching its most recent record close earlier in the week. Historically, the S & P 500 averages flat for about six months after bitcoin peaks, and past cycles point to a topping in the benchmark stock index, Bannister said in a note Wednesday. "Weakening bitcoin … signals an imminent S & P 500 summer correction and consolidation phase," he said. "With the S & P 500 now at the very high end (2 sigma) of bitcoin post-peak cycle overlays since 2011, we have yet another strong signal that an imminent S & P 500 correction is possible." He added that high beta tech stocks such as Nvidia are especially vulnerable heading into the third quarter. The S & P 500 could fall to 4,750, a roughly 13% drop from current levels, by the end of the summer, he told CNBC's "Closing Bell Overtime" earlier this week. Many see bitcoin as "digital gold," but Bannister said he sees it as a speculative instrument driven by excess dollar liquidity. As such, it's always been sensitive to dovish Federal Reserve pivots. In 2020, it became closely correlated with the Nasdaq 100 when the central bank injected trillions of dollars of rescue money into the economy during the Covid-19 crisis. Currently, the market finds itself in an asset bubble now that the "corona-cash" has migrated from consumers to corporations. "Mopping up that liquidity has just begun (and may never be accomplished), but since that dump we have seen politically destabilizing sequential bubbles which first inflated consumer prices and now asset prices," Bannister said. Expectations for a summer correction aren't based on bitcoin alone, however. Stifel said he expects "a case of moderate stagflation" – a combination of high inflation, high unemployment and stagnant demand – to tighten financial conditions and expose the S & P's high price-earnings ratio. Bannister also said investors may be in a "full-fledged bubble/mania mode which looks past our concerns." "Timing is everything," he wrote. "Past bubbles since the 19th century indicate the S & P 500 could well rise to ~6,000 at year-end 2024 and then round trip to near where 2024 began five quarters later, by ~1Q26 (S & P 500 ~4,800)."