The Streak Has Ended
Investors,
It had been 356 days since the S&P 500 had experienced a single-day decline of 2%, a streak which came to an end on Wednesday, July 24th.
How unique was this streak & what are the implications for the market going forward?
This was the longest streak absent of a 2% daily decline since before the Great Recession, slightly surpassing a similar streak that occurred in 2017/18.
Thankfully, Ryan Detrick and the team at Carson Investment Research provided in-depth analysis of this data in order to highlight how the market has performed after similar streaks came to an end:
Whether looking at the average or median returns, returns are positive on a forward basis and indicates that strong momentum begets more strong momentum.
So as we think about the streak coming to an end, which many bears are now citing as a potential turning point in the direction of the market, is this data something that we want to fade?
I sure don’t.
Thankfully, as we think about these bullish implications for the stock market, we can extrapolate how this will help to create strong tailwinds for Bitcoin. At the time of writing (Friday afternoon), Bitcoin is trading at $67,600 and has held up extremely well during a period where the S&P 500 and the Nasdaq-100 have faced downward pressure.
During the decline from $68k to $63.5k, I took advantage of the volatility by adding to core Bitcoin-related positions, notably via a few proxies:
Microstrategy $MSTR.
Bitcoin mining stocks, $IREN, $CLSK, and $CIFR.
The REX Shares T-REX 2x Long Bitcoin Daily Target ETF $BTCL.
While this fund, or its 2x inverse counterpart, is not suitable for all investors, many folks have reached out to ask me why I’m choosing this fund over other 2x leveraged Bitcoin products in the market, like BITU or BITX.
First of all, I’ve actually sold my prior positions in BITU and BITX in favor of BTCL.
Why?
Two primary reasons:
Lower fees: BTCL’s expense ratio is 0.95%, substantially lower than BITU’s 1.85% expense ratio.
Spot vs. Futures: BTCL is a spot-based leveraged product, using the BlackRock Bitcoin Trust as the underlying security and generating leverage on that ETF. In my view, this is much more desirable than the futures-based products, which can suffer from complicated dynamics like contango and backwardation. Both BITU and BITX are futures ETFs, which might be less efficient over the long-run.
To read more about read more about the T-REX Bitcoin ETFs, visit their website here.
Without further ado, these are the top charts/datapoints that I want to share with you:
Macroeconomics:
The key data this week was the result for Q2 2024 real GDP.
After months of hearing that the economy is decelerating and/or contracting, we finally got to put those erroneous prognostications to the test and actually find out how the inflation-adjusted GDP evolved in Q2.
Thankfully, the Atlanta Fed and the New York Fed both post their model-based predictions and estimates for real GDP growth, which are updated frequently in the months leading up to the official release of the data.
Going into the release of the actual GDP data on Thursday morning, the Atlanta Fed’s GDPNow was predicting a quarter-over-quarter annualized growth rate of +2.7% while the New York Fed’s Nowcast was expecting +2.0% growth.
Even median Wall Street estimates were predicting +2.0% growth, which still would’ve represented a substantive acceleration vs. the Q1’24 real GDP growth rate of +1.4%.
The result came in much higher than estimates, posting real GDP growth of +2.8%!
What we’re actually saying here is that the economy grew +0.7% during the quarter, for an annualized growth rate of +2.8% if we compound the quarterly growth 4 times.
Personally, I’m not a fan of annualizing data because it inherently (and incorrectly) assumes that growth will remain constant over the subsequent quarters, which is a terrible perspective to have in an ever-changing & dynamic economy of 330M people.
Either way, we can arrive at two important conclusions from the chart/data above:
The inflation-adjusted economy is growing in-line with non-recessionary periods over the past 20 years, consistently generating real quarterly growth between +0.35% and +1.2% since mid-2022. In fact, the average quarterly growth rate from Q3’22 and Q2’24 is +0.68% per quarter! Certainly, that isn’t recessionary.
After a recent deceleration in quarterly growth since the peak in Q3’23 at +1.19%, the uptick in Q2’24 represents a clear acceleration, completely invalidating the misguided narrative that the economy is slowing down.
Given this context, I think it’s also important to analyze GDP data on a YoY basis.
With this perspective, we can generate a well-founded, in-depth, and encompassing view on economic activity and the trend of growth.
On a YoY basis, real GDP in Q2’24 grew at a pace of +3.12%, up from +2.92% in Q1’24:
Once again, this represents a notable acceleration vs. the prior results, providing unequivocal evidence that the economy is both generating solid growth and accelerating.
If you fail to accept these objective truths, I don’t know what to tell you.
What’s shocking is that some people, particularly those who have endlessly called for the imminent collapse of the U.S. economy are noticeably bitter and upset by this data.
In response, they’ve gone silent or decided to focus on individual niche datapoints, like the contraction in durable goods, in order to invalidate the aggregate data.
These are the same folks who have been wrong at every turn about macro for 2 years.
Some have been wrong for even longer than that.
So you have a choice as an investor and curious market participant…
You can listen to the people who have been wrong for 24 months or you can listen to the people who have been right for 24 months.
I’m hopeful that the 12,000 of you who are subscribed to Cubic Analytics will continue to make the right choice.
Stock Market:
One of the catalysts for the ongoing bull market in equities has been the persistent rise in forward earnings expectations for the S&P 500, which I’ve covered extensively in the past. Much of the uptrend in forward earnings has been driven by large/mega-caps, which helps to explain the fundamental outperformance of mega-caps over small-caps during this 18-month bull market.
As we look at three cohorts, we can see these dynamics taking place:
Focusing specifically on the red line, tracking forward earnings for the S&P 500, we can see that forward EPS estimates are continuing to hit new ATH’s.
However, both the S&P 400 (mid caps) and the S&P 600 (small caps) have yet to do the same (though mid caps are much closer than small caps to accomplishing this).
Thankfully, with earnings season firmly upon as now for Q2’24 results, companies are able to provide new data & more accurate forecasts about their future. Earnings data from FactSet for Q2’24 indicates that “78% of S&P 500 companies [of which 41% have reported earnings] have reported a positive EPS surprise.”
With the entire index currently trading at a forward price to earnings (P/E) ratio of 20.6x, it’s nearly impossible to look at market conditions and call the current environment a bubble or unbacked by improving fundamentals.
Still, we’re early into earnings season and have roughly 60% of companies yet to report.
Given the resilient & dynamic nature of the U.S. economy, plus the clear proof of an economic re-acceleration in Q2’24 that I highlighted in the macro section above, I believe it’s appropriate to expect solid results for the remainder of Q2 earnings season.
Bitcoin:
Given the backdrop of potentially bullish stock market dynamics, I’m still very focused on the idiosyncratic signals that have been taking place for Bitcoin.
As I outlined a few weeks ago, one bullish signal that I’m waiting for is a 90-day overbought momentum thrust from the Williams%R indicator:
As we can see in the chart above, a full oscillation from oversold (below lower-bound) to overbought (above the upper-bound) have provided very interesting signals about momentum and strength within the Bitcoin trend.
We’re still waiting for this signal to occur, but my guess is that a breakout and daily close above $69,000 would officially trigger the bullish signal, which could come in the next few days/weeks.
While this indicator provided a relatively underwhelming result in the June 2023 case from a short-term perspective, resulting in a drawdown of -17% in ~3 months, an investor who used that signal to buy BTC only needed to be patient.
Today, that investor would be up +125% on that purchase, roughly one year ago.
An investor who bought BTC on the January 2023 signal is up +225%.
An investor who bought BTC on the October 2023 signal is up +128%.
The question is, can you be objective & patient enough when this signal flashes again?
Best,
Caleb Franzen,
Founder of Cubic Analytics
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This report expresses the views of the author as of the date it was published, and are subject to change without notice. The author believes that the information, data, and charts contained within this report are accurate, but cannot guarantee the accuracy of such information.
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Solid write up. 90 day w% is an interesting signal to keep an eye on.
Question. Why did you not buy WULF? :o (has your investment thesis changed?)