After months of frustration, the wait is finally over.
Congress has produced a coronavirus stimulus package.
Yesterday, lawmakers were able to strike a deal, providing direct payments to Americans while supporting some of the U.S. economy’s softer sectors.
Overall, the relief package was what investors wanted.
But it might not have been enough to keep bulls satisfied. The major indexes are all down as of noon.
Analysts are blaming a new British Covid strain – one that’s reportedly more infectious than the American variety – for this morning’s damage.
“There was actually a lot of encouraging news this morning, although it’s being overshadowed (for now) by the gloomy headlines out of the U.K.,” explained Vital Knowledge founder Adam Crisafulli in a note to clients.
“The market has been in a tug-of-war between the very grim near-term COVID backdrop and the increasingly hopeful medium/long-term outlook (driven by vaccines) – the latter set of forces are more powerful in aggregate, but on occasion the market decides to focus on the former, and stocks suffer as a result.”
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In many ways, it seems like traders are using the U.K. Covid news as an excuse to take profits, when in reality, an already-priced-in stimulus package is likely contributing to a larger portion of the selling.
Stocks have been rising for weeks, now. Eventually, they had to take a break. Given today’s headlines, a stumble makes perfect sense.
But will the market continue to fall?
It certainly could. Wall Street’s grown increasingly nervous among the hyper-bullishness. Bank of America strategists, for example, went so far as to recommend selling in a recent commentary sent to clients.
A ceaseless stream of liquidity (provided by the Fed) and government stimulus should keep stocks rising long-term.
The problem is, economists think inflation’s ready to climb, too, which would cut deeply into the market’s real returns.
Former Rubicon fund manager Richard Cookson says an Eastern rebound could spike inflation as well.
“Global inflation has ‘Made in Asia’ stamped all over it,” Cookson wrote, adding that “it’s about to pick up both soon and sharply” due to a “humming” Asian economy.
It’s no surprise to see inflation hedges like Bitcoin surging in response, especially now that celebrity investors are getting in on the action.
Just over the weekend, Tesla CEO Elon Musk asked about “large” Bitcoin transactions in a Twitter exchange with noted crypto bull and MicroStrategy founder, Michael Saylor. Bitcoin’s ascent to $20,000 last Wednesday had speculators intrigued.
On Saturday, crypto’s top coin crested $24,000, blowing past its 2017 high of roughly $19,600 by a wide margin.
Saylor told Musk do to his shareholders a “$100 billion favor” by converting Tesla’s balance sheet from U.S. dollars to Bitcoin.
“Other firms on the S&P 500 would follow your lead & in time it would grow to become a $1 trillion favor,” Saylor said.
To Saylor’s credit, he has already switched $1 billion of his own company’s cash to Bitcoin. MicroStrategy presently owns over 70,000 Bitcoin.
And if other companies follow suit, it could set a dangerous precedent for “no-coiners” – the folks who don’t own Bitcoin – as crypto becomes more popular. Companies that don’t hold a sizable chunk of Bitcoin will be left in the dust, relatively speaking, as Bitcoin’s price rises further.
It’s not a full-blown trend just yet, but if Musk and others get on board, it could easily become one. Possibly as soon as next year.
Does that mean investors should rush out and convert all their fiat to Bitcoin? No, not entirely. But allocating a small portion of their portfolios to it (and treating it like gold) probably makes sense, particularly now that central banks are gearing up for an endless “liquidity fest” for the foreseeable future.