December 7, 2024 Market Update

U.S. stocks showed somewhat divergent performances this week, with the S&P 500 and Nasdaq Composite reaching record highs while the Dow Jones Industrial Average and Russell 2000 lagged.  The S&P 500 rose 1%, and the Nasdaq surged 3.3%, driven by strong gains in technology stocks.  In contrast, the Dow fell 0.6% to 44,642, and the small-cap oriented Russell 2000 declined 1.1%.

The market’s gains in predominantly large cap growth equities came amid a better-than-expected jobs report, which showed strong hiring but a slight uptick in unemployment, alleviating immediate concerns about overheating inflation.  Treasury yields eased as both the 2-year and 10-year yields declined, reflecting a general rise in risk sentiment and as investors assessed the future direction of the Federal Reserve’s monetary policy. 

Bitcoin, the oldest and largest cryptocurrency, crossed the $100,000 benchmark last week, bolstered by news that President-elect Donald Trump named crypto-friendly officials to key posts in his new administration.  Key among them is the appointment of Paul Atkins, a prominent crypto lobbyist, to head the Securities and Exchange Commission (SEC).

Bitcoin is up approximately 130% this year and has surged more than 36% since Election Day.  Its market value is now just shy of $2 trillion.  Despite the misgivings of Warren Buffet, Jamie Dimon, Bill Gates and other skeptics, it seems cryptocurrency has entered the financial mainstream, at least for now.  

Given the foregoing, it may seem odd that I have excluded cryptocurrencies from my clients’ portfolios and do not plan to add them anytime soon.  My reluctance to do so is rooted in their lack of any fundamental value and their susceptibility to dramatic speculation-driven price swings.

Bloomberg’s Brian Swint recent post does a fine job of summarizing my concerns. 

“The greater-fool theory—the principle that the price of an investment doesn’t matter as long as someone might be willing to pay more for it—usually has its limits.  But crypto is different from other investments.  The main reason for owning stocks is a claim on companies’ future profits, and bonds pay interest.  Cryptocurrencies don’t have any intrinsic value, only extrinsic—in other words, their value lies exclusively in other people’s willingness to buy them.

None of this is to suggest that Bitcoin and other digital assets can’t keep going up.  They most certainly can.  More money is pouring into the industry.  But getting rich from crypto could be another matter.  A study by the Bank for International Settlements found that, between 2015 and 2022, most investors in crypto lost money even though prices went up.  Anyone considering dipping their toes in now should keep that in mind.”

For a deeper dive into what Trump’s presidency could mean for cryptocurrencies, take a look at Renaissance or Prelude to Chaos? Crypto's role in the Trump Era, posted last week by The Milwaukee Company’s Research Team on our Macro-Markets.com website.  

That’s all for now.  Have a great weekend and invest wisely my friends.