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"It's a bull market, you know."
These words from the legendary trader Jesse Livermore have never felt more relevant.
Stocks keep putting in new all-time highs every week. And Bitcoin surged to new highs after a brutal two-year bear market (although some of us saw this coming in April 2023).
But what makes this even more impressive is all of this is happening with interest rates at 5.5%. The last time S&P 500 and Bitcoin prices were this high, rates were near 0% and many thought both rallies were a “zero interest rate phenomenon.”
Clearly, that was not that case, and that fact has major implications for where both stocks and crypto markets are headed next…
…as investor risk appetite is back in full effect.
That Was Then, This is Now
The backdrop was very different last time stocks and crypto were at these loft levels.
The global economy was coming out of COVID-19 lockdowns. The US government had just doled out multiple “stimulus packages” to blunt the economic affects of the pandemic. And to try and stimulate the economy, the Federal Reserve cut interest rates to 0%.
When interest rates are low, it makes money “cheaper” and often fuels speculative investments. At the time, this was blamed for the speculative fervor we saw with stocks, crypto, and real estate.
Today’s environment couldn’t be more different. Since the Fed raised interest rates at their fastest pace in 40 years, money is no longer “cheap.”
That makes this latest rally in both stocks and crypto even more meaningful. It underscores a profound confidence among investors that the economic conditions might be turning more favorable - another trend a few of us saw coming before the herd - or at least that the peak of monetary tightening has passed, setting the stage for high-risk, high reward assets to thrive.
But why does a booming crypto market bode well for stocks? The answer lies in the nature of risk appetite.
Investor “Risk Appetite” is Back
Cryptocurrencies are a high-risk, high reward asset.
They are notoiously volatile, and it’s not uncommon for certain cryptocurrencies to surge 10,000% in a bull cycle.
But on the flip side, many will also fall -99% in a bear market. When investors are willing to take these types of risk, it usually means investor “risk appetite” is high.
And this general bullishness often spills over into the stock market.
This time is not different. Despite the Federal Reserve's aggressive interest rate hikes to combat inflation, the rally in Bitcoin and stocks - particularly voltile ones like Nvidia (NVDA) - suggests that investors are looking beyond the immediate monetary tightening. With expectations of rate cuts on the horizon, there's a growing sense that now is the time to be invested.
Moreover, the rally in Bitcoin and its implications for risk appetite come at a critical juncture.
Three Reasons Stocks and Crypto Have Room to Run
This rally in stocks and crypto caught many investors by surprise.
But not me. For instance, here are a few other calls I nailed over the last year (with receipts to prove it):
April 2023: “we are at the start of a new crypto cycle”
June 2023: “the US is not in recession”
Septmeber 2023: “Bitcoin will be higher a year from today”
October 2023: “the market pullback in over”
November 2023: “stocks can keep rallying”
February 2024: “NVIDIA is still a buy”
And I want to go on record saying I expect both stocks and crypto to go much higher in 2024 (if you want to see exactly what 25+ stocks and crypto I hold in my personal portfolio, click here).
For one, we have a Federal Reserve that’s looking to cut interest rates in the coming months. Lower interest rates make borrowing cheaper, stimulate economic growth, and generally favor higher-valued assets like technology stocks and, by extension, cryptocurrencies.
And since the Fed is cutting rates to “lossen” policy as opposed to in response to a crisis (i.e. a recession), markets are entering a “goldilocks” period which is historically great for returns.
Second, market sentiment in crypto has yet to hit the “mania phase” that typifies every crypto cycle. While I believe we’ve transition from “early” to “mid” crypto cycle…
…I still believe there is a lot of upside ahead (and am putting my money where my mouth is). Plus, we have robust institutional buying from Blackrock and other financial instutitons driving prices higher…
…and a looming bitcoin “halving” which has historically kicked off every major Bitcoin bull run.
Lastly, while the US economy is not perfect, we are in better shape than most people think. Low unemployment, tamed inflation, and steady S&P 500 earnings growth imply the fundamental outlook for US stocks is better than most think.
That’s especially true since - while this bull run has been hated by many who missed the move higher - it is not unusual in the context of previous bull markets:
And as long as this trend continues, I will remain bullish.
The Trend is Your Friend
While the current rally offers a compelling narrative of a bullish market, it's crucial for investors to remain vigilant.
But for now, the trend is still powerfully higher. And you need to keep dancing as long as the music is playing (if you like making money).
For those looking to navigate these bullish currents, the message is clear: keep owning growth assets like stocks and Bitcoin until the trend suggests otherwise.
Just as Livermore observed, we're in a bull market, and for now, the path of least resistance appears to be up.
And I plan to capitalize.
Stay safe out there,
Robert