The U.S. economy has a good start in 2024. Although the rise in CPI may delay the timing of interest rate cuts, the bright situation reflected in the beautiful U.S. economic data has brought sufficient confidence to the market (especially consumers). U.S. stocks continued to hit new highs in January, and technology stocks (AI) regained the market focus, but Tesla suffered its first decline in gross profit in many years; Asia-Pacific stock markets performed well, and European stock markets fluctuated steadily. The Bitcoin ETF was passed as scheduled, but the crypto market was temporarily under pressure due to Grayscale's selling pressure. However, with the reduction of selling pressure, the market is currently stabilizing and accompanied by a certain rebound.
On January 5, the first important economic indicator of the new year in the United States was released: the number of non-farm payrolls in the United States increased by 216,000 in December (estimated to increase by 175,000), of which the number of non-farm payrolls in the private sector increased by 164,000 (estimated to increase by 130,000), far exceeding market expectations. The new year started well, which undoubtedly gave investors the first shot of chicken blood in the new year.
However, the hot employment data also brought inflation concerns to the market. Data released by the U.S. Department of Labor on the 11th showed that the U.S. CPI rose 3.4% year-on-year in December last year, an increase from 3.1% in the previous month, exceeding the expected 3.2%, and far higher than the 2% inflation target set by the Federal Reserve. At present, although inflation has rebounded, almost no one expects interest rates to continue to rise, and most market views believe that the time for interest rate cuts will be later than expected.
In last month’s CME FEDWATCH TOOL table, the market expected a 75.6% chance of a rate cut to 5% to 5.25% at the Fed’s meeting on March 20. However, by now, the probability of a rate cut in March has dropped to 42.4%, and the market generally expects a rate cut to be possible by mid-year.
In fact, we can also see from the trend of US Treasury bonds that the market has already noticed the rise in CPI. Throughout January, the US 10-year Treasury bond was basically in a steady upward trend.
The impressive non-farm data and the rise in CPI may mean that the US economy continues to maintain a relatively strong momentum. As expected, the Markit manufacturing index released on January 24 also exceeded market expectations: the initial value of the US Markit composite PMI in January was 52.3, higher than the expected 51. Among them, the initial value of the Markit manufacturing PMI was 50.3, a new high since October 2022, far higher than the expected 47.6. The unexpected PMI shows that both the manufacturing and service industries are showing a trend of increasing orders, and enterprises are in a relatively good business environment.
The GDP data also exceeded market expectations. The annualized quarterly GDP growth rate of the United States in the fourth quarter was 3.3%, while the expected value was 2%. So far, the annual growth rate of the US GDP has reached 2.5%.
The economic situation is not only reflected in the unexpected economic statistics, but also in the rise of the US consumer confidence index in January. Among them, the University of Michigan confidence index hit a new high in a year and a half.
Last month, the Dow Jones Industrial Average hit a record high, and this month the S&P 500 followed suit, reaching a record high, surpassing the previous high on January 4, 2022. Currently, the Nasdaq is the only one of the three major U.S. stock indexes that has not reached a new high, with only about 5% left to reach a new high, but the Nasdaq 100 Index has already achieved a new high ahead of the Nasdaq.
The market focus returned to technology stocks - Nvidia and Microsoft have hit record highs again. The AI wave is a human revolution that will last for years or even decades, which is now a comprehensive consensus in the market. Looking back at 2023, the big 7 U.S. stocks have all seen gratifying gains, becoming the largest carrier of market alpha returns - Apple rose 49% throughout the year, Google rose 58%, Microsoft rose 58%, Amazon rose 80%, Meta rose 194%, Nvidia rose 239%, and Tesla rose 101%.
Institutional preference for large-cap stocks was a very significant market style in the U.S. stock market last year. When we compare the S&P 500, a representative index for large-cap stocks, and the Russell 2000, a representative index for small-cap stocks, we can clearly see that large-cap stocks are stronger than small-cap stocks. On the one hand, the market continued to live in the Fed's interest rate hikes last year, and large-cap stocks with "good performance and beautiful appearance" (especially the big 7 with clear expected support from AI) have extremely high risk-avoiding attributes; on the other hand, as the market begins to Turning to interest rate cut expectations, if the U.S. economy can achieve a soft landing this year and continue the prosperity at the beginning of the year, then small-cap stocks may win annual alpha. After all, the weighted price-to-earnings ratio of the Nasdaq 100 Index is currently around 87% of history. Otherwise, funds may continue last year's risk aversion and continue to be conservative.
It is worth noting that although Nvidia and Microsoft have both hit record highs, Tesla has been in a continuous decline. On January 25, it even opened lower and fell by more than 12%. The reason is very direct-Tesla's title as the global electric vehicle overlord is being taken away by the Chinese company BYD. Data released at the beginning of the month showed that Tesla delivered 484,500 vehicles in the fourth quarter, exceeding market expectations, but less than BYD's 526,400 pure electric vehicle deliveries in the same period. The financial report released after the market on the 24th further illustrates the problem: the total gross profit in 2023 fell for the first time in many years, down 15% from 22, and cash flow also fell by 42%.
Other countries' markets also performed positively in January, especially Japan and India. The Mumbai Sensex 30 index reached a high of more than 73,400 points this month, setting a new record high; Japan's Nikkei 225 index approached 37,000 points, which is very close to 38,957 points in 1990, and strives to recover the "lost thirty years"; Germany's DAX and France's CAC 40 are currently in a high sideways state, and there is no obvious risk on the technical side.
As expected, on the 11th of this month, the spot ETFs of 11 companies were collectively approved as scheduled. From this moment on, ordinary U.S. stock investors can bypass the complex wallet and exchange mechanisms in the crypto world and buy Bitcoin assets like buying and selling stocks, which will undoubtedly bring a large amount of incremental assets to the crypto market.
However, when everyone thought that Bitcoin would go bullish, the crypto market fell into a bear market. In fact, the reason for the market decline is very direct - early buyers of Grayscale GBTC are selling.
Grayscale has been a major institutional buyer in the crypto world since its inception, and is also one of the largest crypto "open whales". For many years, it has provided investors with compliant cryptocurrency investment channels in the form of trust funds. At the beginning, Grayscale provided the market with a barrier-free Bitcoin investment method in the form of a private equity fund. Users can directly invest in GBTC, or transfer Bitcoin to Grayscale in exchange for an equal amount of GBTC shares (in kind). Due to the long-term premium of GBTC, many arbitrageurs have participated in it, and they can instantly obtain the same returns as the premium by investing in kind. However, in 2014, Grayscale suspended the redemption mechanism of GBTC, resulting in investors being unable to redeem. Since then, Grayscale has been "only buying but not selling".
Now, Grayscale's GBTC has been successfully converted into an ETF, and early investors can sell their previous shares through the ETF. These early investors were eager to redeem because of their huge profits and long-term inability to redeem, so there was a huge market selling pressure. It can be seen from Grayscale's holdings that Grayscale's large-scale reduction of holdings began on the 11th.
Therefore, in a sense, the current selling pressure in the market comes from the early "old money", which cannot represent the crypto community's view of the market, let alone the thoughts of the new Bitcoin ETF investors in this cycle. In fact, it can be seen from the holdings that, except for Grayscale, the other Bitcoin ETFs are bottom-fishing.
Since the reason for the market pressure is clear, we only need to estimate when this selling pressure will end. JPMorgan Chase previously estimated that the net outflow of GBTC would reach about $3 billion. In the latest research report of JPMorgan Chase on the 24th, it said, "Considering that the net outflow of GBTC has reached $4.3 billion, we conclude that the profit-taking phase of GBTC has been basically completed, which means that its downward pressure on Bitcoin should have basically ended." JPMorgan Chase believes that the selling pressure has been sufficiently alleviated at this time. Influenced by this news, the price of Bitcoin began to stabilize around $40,000 to $41,000, and showed a certain degree of recovery.
The short-term price trend will be affected by various events, but the hard logic of the bull market is obvious. ETFs provide retail investors and institutions with a more convenient way to buy Bitcoin. Therefore, we still have great confidence in the occurrence of the 2024 bull market.
In the first month of the new year, friends in the stock market can feel the kindness of money, but friends in the cryptocurrency market have experienced a less smooth start. At present, there is no obvious risk in the overall liquidity of the market, and the US economy remains gratifying. In this environment, it is only a matter of time for the cryptocurrency market to recover the losses caused by Grayscale's selling pressure and move towards a new upward trend. The hard logic of incremental funds is beyond doubt, so after enduring this cold January, we will definitely welcome a warm spring.
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