What's Up with Bitcoin?

Insights from the Greenwood Capital investment team: Walter Todd , John Wiseman , Mark Pyles , John Decker, CFA , Justin Bartanus .

• Headline Retail Sales numbers for October beat expectations along with sharp upward revisions for September numbers
• CPI was largely in line with expectations, which resulted in headline YoY accelerating to 2.6%; core PPI was a bit hotter than expected
• Initial Jobless Claims came in better than expected (217k vs 223k); at low levels again following the disruptions from Hurricanes strikes last month
• NFIB Small Business Index ticked up for October; however, uncertainty also came in at an all-time high (the latter is likely to shrink now that the election is behind us)

Takeaways:

After a few months of disruptions, economic data is beginning to normalize and is showing a resilient economic backdrop. Though the possibility of reaccelerating inflation continues to be a concern, employment and consumer spending have held up well.

Given this backdrop, odds of a December rate cut have fallen meaningfully. Though we are encouraged by the economic data, the fears of inflation and slowing growth continue to suggest caution is warranted.

• The S&P 500 fell 2% last week, giving back some of the post-election rally
• After an outsized run of positive performance the previous week, smaller cap stocks underperformed large caps, with the S&P 600 falling 3%.
• As the market has moved on election policy uncertainty and earnings, Financials, Energy, and Utilities Outperformed while Healthcare, Tech, and Materials Underperformed.
• The ex-US world continues to lag the US, as the DXY continues to surge and sits near the highest level in 2 years.

Takeaways:

Immediately after the election, the market surged on expectations of a stronger growth environment. As markets tend to do, the reaction was likely in excess. That optimism was tempered last week with concerns over inflationary pressures as well as policy uncertainty as potential cabinet members were announced.

We expect continued volatility and divergent performance by name and sector/industry as we receive more information about what the next four years will look like. However, the path of least resistance is still likely higher as we hit a typically positive period of seasonality for markets.

• Credit spreads moved slightly wider on the weak in concert with weaker equity markets.
• The 3m/10yr spread – the Fed’s preferred spread – is only a few basis points away from uninverting for the first time since late 2022.

Takeaways:

Armed with the latest information on pricing pressures this past week, Chair Powell stated at a conference appearance that the Federal Reserve was in no hurry to lower its rate. As a result, the chance of a December rate cut was reduced from a near certainty to a coin flip. In response, Treasury yields moved higher on the week.

Bitcoin has surged nearly 30% since the election

Cryptocurrency has been in the headlines partially as a result of statements made by Trump during the campaign including:

• Stating that he will fire Gary Gensler, current chair of the SEC, and will establish a crypto advisory council to evaluate potential policies and regulations
• Floating the possibility of creating a strategic US Bitcoin reserve

WHAT IS CRYPTO ANYWAY?
Cryptocurrencies, such as Bitcoin or Ethereum, are virtual currencies that are generally either used as an investment vehicle, a store of value (similar to gold) or as a new payment method. They are part of a secure platform that uses a technology called blockchain to record transactions, which occur without the need for a centralized authority such as a bank.        

Takeaways:

The cryptocurrency environment is certainly worth watching given the outcome of the election and prevailing sentiment surrounding broad-spread application. However, while the blockchain space certainly contains high-quality potential investment opportunities, we feel the unregulated environment still makes crypto investments like Bitcoin a risky venture.

New regulatory recommendations, which may be introduced during Trump’s administration, could change the playing field in this regard. While increased regulation and control would open more avenues for adoption and application, it would also likely stymie some of the risk bet that lies in the space.

This week is a light economic data week with November preliminary PMI Manufacturing and Services, along with Housing Starts and Existing Home Sales. ?Earning season is wrapping up but we still have some big names to hear from including the biggest of them all in Nvidia.? Target, Walmart, Lowe’s, and John Deere also report this week.

Questions? Email us @ [email protected]

Prefer to receive Views from the Bullpen directly to your inbox? Subscribe here.

This commentary represents the opinions of Greenwood Capital Associates, LLC and is for informational purposes only. The information contained herein has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy. It is not intended as a basis for the implementation of any particular investment strategy or any decision to purchase or sell. The opinions expressed are subject to change from time to time and do not constitute a recommendation to purchase or sell any security nor to engage in any particular investment strategy. Investment Advisory Services are offered through Greenwood Capital Associates, LLC, an SEC-registered investment adviser.