Cryptocurrencies are down, but don’t count them

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Updated June 24, 2022 9:27 PM ET / Original June 24, 2022 9:15 PM ET

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This commentary was posted recently by fund managers, research firms and market bulletin writers and was edited by Barron’s.

Crypto Endgame is not close

Paulsen’s point of view

The Leuthold group
June 24: Cryptocurrencies have long been considered flash speculation, doomed to end badly.


Bitcoin

has fallen from nearly $70,000 to around $20,000 since last November and is now only $10,000 more than in 2017. An asset whose price has fallen 70% in just seven months is often a sign of bankruptcy! Therefore, given Bitcoin’s extreme price crash, judgments that the Crypto Craze is coming to an end have again intensified.

This may turn out to be correct. But, overlaying the Bitcoin chart and the


S&P500

[suggests] the fall of the last six months in bitcoin is not so bad. Bitcoin declined less than between December 2017 and December 2018. Additionally, in 2011 and 2014, Bitcoin experienced even larger percentage declines. This is what Bitcoin does – it rises much more aggressively and falls much steeper than most other investments. Therefore, the massive price declines, while eye-catching, do not suggest the asset class is insolvent.

Even though the price of Bitcoin has fallen almost three and a half times more than the S&P 500 since its recent high, they are both at the same price as they were at the end of 2020. It is a bear market, and well that both are significantly down, neither is likely to go bankrupt anytime soon.

James W. Paulsen

Sudden drop in raw materials

Talking points

BMO Capital Markets
June 24: It seems hardly anyone now believes the economy can pull off a soft landing in the face of the current battle with inflation – not Fed Chairman Powell, the local official

Uber

driver, Cardi B, nor the majority of Canadians. Each has expressed in their own unique style of communication that expansion is in serious jeopardy in the coming months. In testimony to Congress this week, Powell suggested that the path to a soft landing is getting “more and more difficult” and that bringing down inflation without increasing unemployment will be “much more difficult.” Financial markets are pricing in these growing risks – this week, cyclical commodity yields and prices have pulled back significantly…

A key indicator that reinforces the view that growth may soon weaken is the surprising drop in commodity prices. Oil prices are dominating the airwaves on this front, and they have pulled back slightly after a big drop last week. Even with a firmer Friday, they are still near the lowest levels since early May at around $107 a barrel. North American natural gas prices have fallen even further, albeit for reasons that go beyond growth prospects. Perhaps more telling is the sharp decline in industrial metals, particularly Dr. Copper. The red metal has fallen almost 20% in the past three weeks and is now at its lowest level since the start of 2021, after hitting a record high in the aftermath of the invasion of Ukraine. Many broad non-energy commodity measures – even agriculture – are now below pre-invasion levels due to global growth concerns.

Douglas Porter

Markets and Midterms

Strategy Spotlight

RBC Capital Markets
June 21st: We’ve been surprised by how often the midterm elections have come up in our recent conversations with U.S. equity investors, with several reminding us of how weak the stock market tends to be ahead of mid-terms and to recover about a month before the elections. In turn, we reminded investors that equities tend to rise during midterm election years, but with returns well below trend, with average/median annual gains of around 6% rising to the 1930s. We also pointed out that it’s not just the stock market that could benefit from a midterm boost later this year. If Republicans do well, as investors widely expect they will, based on lackluster polling data for President Biden and Democrats, that could also help consumer sentiment. One of the things that jumped out at us in the University of Michigan consumer sentiment survey is that Republicans feel a lot worse than Democrats. While sentiment for Republicans and Democrats has declined in recent months, it has hit new lows for Republicans. Meanwhile, sentiment remains above past lows for Democrats.

Lori Calvasina

The fall of the generals

Technical Strategy

BTIG
June 20: The generals were eventually shot. Through June 7, the top three performing sectors were Energy (+65%), Utilities (+2%) and Materials (-5%). Since June 8, these are the three worst performing sectors, down 20%, 12% and 14%, respectively. This brought the overall magnitude to levels close to elimination. Only 10% of


Russell 3000

the components are above their 200-day moving average, and 43% of the S&P 500 hit a 52-week low last Thursday. Yields and commodities appear to have reached tactical highs, and several of the low momentum groups (

Ark Innovation ETF
,

SPDR S&P Biotech
,

etc.) did not reach new lows last week.

While we continue to believe that an S&P 500 below 3,500 is likely before a final sell-off event, there has been enough short-term damage to suggest upward movement towards the end of the quarter, coinciding with a continued momentum of factors. . This means that long duration/growth should be in the lead, while defensives and energy should be lagging.

Jonathan Krisky

Fragile earnings outlook

Palumbo Pulse

Palumbo Wealth Management
June 18: A recession could impact corporate profits by 10-15%. With 2022 earnings estimates for the S&P 500 still holding at around $225, we expect a decline to around $200 per share. Apply a price/earnings multiple of 16 to these earnings and that brings us to a target of 3,200 for the S&P 500, with the caveat that the market typically overshoots down as well as up. Buckle up, summer could be long and tough. But once the growth estimates are revised, buying opportunities should appear.

Philip G. Palumbo, Doug Augenthaler

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