It's the same with virtual currencies, but is it the same with Nasdaq? One Wall Street investment strategist seems to think so.
Barry Bannister, chief equity strategist at Stifel, argues that Bitcoin's price may have hit its all-time high in mid-March, when it traded above $73,000. Bitcoin then fell to around $67,500 late Friday. If cryptocurrencies continue to fall, tech stocks could soon start falling as well.
Bannister said in a report this week that both Bitcoin and the tech industry
Nasdaq-100
The index “reflects the speculative fever fueled by cheap money following the Fed's dovish policy shift.” He said the enthusiasm may now be peaking as investors are starting to price in fewer interest rate cuts from the Federal Reserve than they were at the end of last year.
“Bitcoin is a dynamic vehicle in the stock market,” Bannister said in an interview.
He notes that cryptocurrencies tend to be traded alongside highly leveraged exchange-traded funds that are technology-focused.
ProShares Ultra Pro QQQ
An ETF that uses derivative contracts to try to boost the daily rate of increase in the Nasdaq 100 index.
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The recent drop in Bitcoin prices is a “warning sign that Fed-related boom may be priced in” for the riskiest assets, the strategist added.
Bannister predicts that Bitcoin could fall to $45,000 by October of this year, potentially weighing down big technology companies.
Investors already appear to be weary of the Magnificent Seven stock, which accounted for much of last year's market rally.of
Equal Weight S&P 500 ETF
—This is not a special emphasis on Apple or Microsoft.
,
Amazon
,
Alphabet and other tech giants have recently started outperforming the market-cap weighted S&P 500.
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“When the equal-weighted S&P 500 outperforms the S&P 500, value tends to outperform growth,” Bannister said in the report.
Bitcoin-related tech stocks such as chip giant Nvidia
,
Software company MicroStrategy and cryptocurrency miners could be particularly vulnerable. Many of these stocks are trading at valuations that may become unsustainable.
“In my view, Nvidia is phenomenal. The question is, is it worth $2.2 trillion? The answer is probably, but they have to do a great job to make it happen. “No,” said David Miller, co-founder and chief investment officer of Catalyst Funds. Mr. Miller owns no Nvidia stock.
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Miller said he's not sure if tech stocks are following Bitcoin, or vice versa, and the Nasdaq's rise is pushing cryptocurrencies higher. But that hardly matters. “There is a strong correlation between Bitcoin and the Nasdaq,” Miller acknowledged. And it's clear that many of the big tech companies on the Nasdaq are frothy.
Nvidia stock currently trades at about 35 times current-year estimates. This is a classic case of pricing for perfection. There are better bargains out there.
“I think it's funny that Nvidia is going so far. There are a lot of other stocks that are going up this much, but they're not as funny,” said Meb, chief investment officer at Cambria Investment Management.・Mr. Farber said. “NVIDIA is not even in the right valuation world for us.”
Faber cited retailer Abercrombie & Fitch
,
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He doesn't own this stock, as an example of a “very cheap” stock that actually did better than Nvidia over the past 12 months. However, A&F trades at just 16 times this year's expected earnings.
Investors can therefore take comfort in the fact that the stock market rally is finally extending. But it may be time to take their winning chips off the table (literally, in the case of semiconductor stocks) and turn to cryptocurrencies.
Email Paul R. La Monica at paul.lamonica@barrons.com.
