Every month, Madison Business Review editor James Faris recaps the previous month’s news in markets and the economy. This month, Ivan Jackson, executive editor of The Breeze, is providing a recap of the month in cryptocurrency. Sadly, neither can tell you what will happen next month. Until then, enjoy this read, and good luck to those brave enough to face the bull and bear markets.
That’s surely a familiar phrase to all Americans right now, especially for those following the stock market. The only problem with it is that it implies in normal times, the future is easy to predict.
Donald Trump’s upset election win sent stock market futures tumbling the day after in November 2016, the U.S. appeared to be bound for a recession in late 2018 and there was thought to be a “limited probability” of a recession heading into 2020. All of those forecasts were justifiable at the time but dead-wrong in hindsight.
Is there a disconnect between Wall Street and Main Street? At first glance, it appears so, as the recent price action in the stock market appears to defy logic. This quick read breaks down and recaps what happened in markets and the economy in May.
Now, electing Joe Biden — the presumptive Democratic nominee is the current front-runner for the Oval Office — is viewed as a troubling sign for markets, a COVID-19 vaccine is all but a given in early 2021 and big tech is bigger than ever and is driving the market higher. How will history judge these assumptions?
The novel coronavirus has made the futures of small businesses, colleges, sports leagues and even capitalism unclear. Saying there’s uncertainty like never before is a truism — an obvious statement that says nothing new or interesting — but it’s also true. Playing the market is as hard as it’s ever been, even if it’s never been easy.
In June, the three major stock market averages paused their straight shot up, as the Dow Jones Industrial Average rose 1.3%, the S&P 500 jumped 1.5% and the tech-focused Nasdaq advanced 5.3%. Meanwhile, the CBOE Volatility Index — known as the VIX — was up around 17.7%. The latter is called the market’s “fear gauge,” and it typically moves inversely to the three major averages.
No one knows what’s next, and CNBC recently shared a Citi poll of asset managers that showed many said they believed the market’s next 20% move is downward. But instead of guessing, it may be best to go long and strong. After all, hedge funds were sitting on a record-high $4.6 trillion in cash as of mid-June, according to The Wall Street Journal, so it’s safe to say that any substantial weakness in the market will lead to a heavy flow of cash into equities. There would have to be truly catastrophic news for the stock market to retest or fall below its March lows.
Small-money wins big in June
In English folklore, Robin Hood is a legendary outlaw who outsmarted and took from the rich to give to the less fortunate. The skilled archer’s namesake has been revived in recent years and now — after roughly seven centuries — it’s once again enriching the common man and enraging the well-to-do.
Robinhood, an easy-to-use trading platform popular with young investors, has had an undeniable impact on financial markets since launching in 2013. It rose to prominence in recent years and disrupted the brokerage industry with zero-commission trades, which forced industry giants like Charles Schwab, E-Trade, Fidelity and T.D. Ameritrade to follow and cut trading fees.
As the market surged off March lows, many Wall Street pros were consistently proven wrong and “humbled,” in the words of one famous hedge fund manager. Meanwhile, CNBC believes small-time retail investors on Robinhood captured the rally that billionaires didn’t.
Hedge fund managers believing the market would retest lows appear to have been mistaken, as were economists in early June after their jobless claims estimates were wrong in unprecedented fashion. That report saw 2.5 million jobs added; the median estimate called for a loss of 7.5 million while the most optimistic call was for 800,000 job losses, according to Bloomberg.
Fundamental market conditions were, and largely are, undeniably poor, given massive job losses, deficit spending and businesses going under in the wake of COVID-19. Seasoned money managers assessed conditions and stayed away, but for many new and young investors, ignorance was bliss.
Several possible explanations for this bold — and some would say irrational — confidence include faith in the American economy’s long-term resilience, belief coronavirus concerns are and were overblown, extra cash on hand from $1,200 stimulus checks in the CARES Act and a fear of missing out after a decade of strong market performance after the financial crisis.
New accounts at major brokerages, including Robinhood, rose 170% in Q1, according to CNBC. Spikes in trading volume serve as strong evidence that Robinhood investors helped individual stocks soar while fueling the S&P 500’s 38.6% rally off the March lows. Airline stocks like American and Delta, casinos like MGM Resorts and speculative plays like Nikola Motors all soared and were among the most-owned holdings by Robinhood investors, according to CNBC.
Ivan Jackson, executive editor of The Breeze and co-author of this article, is one of these opportunists, and he shared with Barron’s how he saw massive returns through conviction and an aggressive investing strategy. He told the business magazine he “thought maybe this is a good time to get into it” once the stock market plunged.
Believe it or not, Jackson got his best investing idea from TikTok, the uber-popular video-sharing app Generation Z can’t seem to stay off. He put money to work with Nikola Motors and watched it pop from $21 to a peak of $90. Later this summer, he’ll share his full story on TikTok investing, and now, he’ll share about this month in cryptocurrency. -James Faris
June cryptocurrency recap: Crypto grows up
While traditional markets continue down the restless path of 2020, cryptocurrencies have found relative — albeit negative — stability in June. All major currencies finished slightly down from their perch this time last month. Decreased trading volume and a nervous warning from Goldman Sachs to end the month of May may have contributed to that weakness despite renewed confidence in crypto over the past few months.
One of the more interesting revelations of the month was a Fidelity report detailing how 36% of institutional investors hold some form of digital assets. While opinions on how much and in what type of portfolios cryptocurrencies should reside in varies, one thing is clear: More and more institutional investors see it as a viable investment opportunity. Take a look at the comparison to the S&P 500 for example, the price charts for both June and 2020 as a whole are increasingly similar.
One thing that’s sure to please institutional investors is decreased volatility across the crypto market. While Bitcoin may have reached popularity because of its “get rich quick” appeal, June has seen stability on a day-by-day basis. This has led to continued optimism as to the future viability of Bitcoin as it finds firm footing. Bloomberg, for instance, pegs Bitcoin to reach $20,000 per coin before the end of 2020. Bitcoin is no stranger to bullish predictions, so take everything with a grain of salt.
June may have just been the month crypto finally grew up. From the increased approval from institutional investors to the decreased volatility, one thing is clear: Cryptocurrencies are here to stay.
For everyone who spent hours on Thanksgiving convincing Gramps that Bitcoin was legit: Congratulations. -Ivan Jackson
Disclaimer: James Faris owns no stocks mentioned here and 0.0076 Bitcoin. Ivan Jackson is a long-term investor in Nikola. We wrote this article ourselves, and it expresses our own opinions. We aren’t receiving compensation for it, and we have no business relationship with any company whose stock is mentioned in this article. All information is current as of June 30.
Additional disclosure: Investors are always reminded that before making any investment, they should do their own research on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information and shouldn’t be relied on as a formal investment recommendation.