Worries About a Frothy Market and Bitcoin Are Building as Jobs News Arrives
Bitcoin action is drawing comparisons to the 1999-2000 internet bubble.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The market action has been exceptional for a while, but worries about frothy action, and overvaluation are increasing as the November jobs report arrives on Friday morning. It is expected that 214,000 jobs were added, up from just 12,000 in October. The hurricanes and weather events may impact this, but investors are extremely optimistic about economic growth and have little concern about inflation.
This is the last big economic report in front of the Fed’s interest rate policy decision in two weeks. Fed Chair Jerome Powell has been upbeat and signaled that a quarter-point cut is likely, but the extremely strong stock market could make the Fed less dovish if it continues.
One concern for some market players is the rampage in Bitcoin. The strength in Bitcoin is mostly attributed to the potential for a new presidential administration that will be very friendly to the asset class. Even Powell seems to have become resolved to Bitcoin existing as a class of assets similar to precious metals.
However, much like internet stocks in 1999-2000, the valuation of Bitcoin is difficult to analyze. Internet stocks were valued on lots of crazy metrics like page views that had little to do with their profitability before they finally crashed. Bitcoin also lacks valuation metrics. It is pure supply and demand, and that can shift very fast if the mood changes.
If Bitcoin corrects it is likely to impact speculative stocks as well. The Wall Street Journal asks Friday morning: “Is This Wildly Overvalued Stock Market Doomed? Yes, but Maybe Not Yet.” The big issue, of course, is timing, and major market tops don’t tend to form just because lots of folks think stocks are expensive and the action is frothy. Things can stay sticky to the upside for a long time.
What we have to watch for is a negative reaction to good news. When good news is no longer a positive catalyst, that is when corrective action will build and gain momentum
The jobs news Friday morning will provide some clues as to whether we can still rally on good news.
At the time of publication, Rev Shark was long IBIT.
