Bitcoin’s recent weakness could be signaling an upcoming stock correction, according to Barry Bannister, chief equity analyst at Stifel. Bitcoin corrected quickly after reaching an all-time high of $73,797.68 on March 14 and has struggled to maintain $70,000 since then, barring a few missteps. On Thursday, the S&P 500 briefly touched 5,500 for the first time since hitting its most recent record high earlier in the week. Historically, the S&P 500 has been flat on average for about six months after Bitcoin peaks and past cycles have seen peaks in the benchmark stock index, Bannister said in a note Wednesday. “Bitcoin weakness is a sign that a summer correction and consolidation phase for the S&P 500 is imminent,” he said. “There is another strong signal that an S&P 500 correction is imminent as the S&P 500 is currently at the highest level of its cyclical overlay (2 sigma) since the Bitcoin peak in 2011.” .SPX BTC.CM= YTD Line S&P 500 vs. Bitcoin (BTC) Year to Date He added that high-beta technology stocks like Nvidia are particularly vulnerable heading into the third quarter. He said on CNBC’s “Closing the End” earlier this week that the S&P 500 could fall to 4,750 by the end of the summer, down about 13% from current levels. While many see Bitcoin as ‘digital gold’, Bannister said he views Bitcoin as a speculative vehicle driven by excessive dollar liquidity. Therefore, we have always been sensitive to the dovish pivot of the Federal Reserve. In 2020, it became closely correlated with the Nasdaq 100 as central banks pumped trillions of dollars in bailout funds into the economy during the COVID-19 crisis. Currently, the market is in an asset bubble as ‘Corona Cash’ moves from consumers to companies. “While liquidity cleanup has only just begun and may never be achieved, since that dump we have seen a series of politically unstable bubbles, first inflating consumer prices and now asset prices,” Bannister said. However, expectations of a summer correction are not based solely on Bitcoin. Stifel expects a “moderate case of stagflation” combined with high inflation, high unemployment and stagnant demand to tighten financial conditions and expose the S&P’s high price-to-earnings ratio. Bannister also said investors could be in “full-blown bubble/mania mode that exceeds our concerns.” “Timing is everything,” he wrote. He said, “Past bubbles since the 19th century indicate that the S&P 500 could rise to ~6,000 by the end of 2024 and then bounce back five quarters later by ~1Q26 to near where 2024 began (S&P 500 ~4,800 ).”
Bitcoin’s recent weakness is a sign that an S&P 500 correction is imminent, according to Stifel.
