Do stonks stocks really always go up?  Covered: Dow Jones The Buffet Indicator Fed Rally Thanks To Money Printer Crypto’s Relationship With The Stock Market Dow Jones Is Up But For How Long? While this may sound like a surprise considering the Dow Jones is up 700 points today, key data shows that the market […] The post Data Shows Stocks Historically Overvalued: What Does This Mean For Crypto? appeared first on CryptosRus.

Data Shows Stocks Historically Overvalued: What Does This Mean For Crypto?

Do stonks stocks really always go up? 

Covered:

  • Dow Jones
  • The Buffet Indicator
  • Fed Rally Thanks To Money Printer
  • Crypto’s Relationship With The Stock Market

Dow Jones Is Up But For How Long?

While this may sound like a surprise considering the Dow Jones is up 700 points today, key data shows that the market as a whole is historically overvalued. Many people are tired of the Michael Burry’s of the world predicting that the sky will soon fall in the stock market, but these metrics cannot be ignored.

One of the craziest statistics of all is that 411/500 stocks on the S&P 500 are above their 200-day moving average at the time of this report. According to analyst Kirk Spano, that may be a record. As seen below, courtesy of Advisor Perspectives, the average of the four valuation indicators shows that valuations are sky-high, breaking far higher than the previous high of 2000, and we all know what happened in the years following.

The Buffet Indicator

The Buffett indicator, which measures corporate equities (total us stock market valuation) to GDP, also shows a massive spike in 2020, which took us far beyond the all-time high in 2000. In fact, it is now 63% higher than the long-term trend line. This hasn’t been gradual; it has happened in less than 1 month. Now in crypto, we don’t really see Buffett as the “prophet” like many on Wall Street.

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However, his gravitas in the equities market should not be scoffed at. He calls the ratio, seen charted below, “the best single measure of where valuations stand at any given moment.” Based on this data as it stands today, the market is “strongly overvalued.”

With interest rates at all-time historical lows (basically 0), any action by the Fed to raise them would cause stocks to go much, much lower. The low-interest rates we have seen for the last decade make it easy for corporations to borrow cash cheaply to finance growth. Take this out of the picture, and the market becomes very, very bleak.

Because bonds yield such a low-interest rate when adjusted for inflation, investors have sought returns in riskier assets, adding fuel to the overheated stock market. This would prevent a large and quick collapse like in 2000, but it is still more fuel to the perverse fire. Bonds have sunk to an all-time low in terms of yield, but this could also be because investors prefer to chase the yield of crypto.

Fed Rally Thanks To Money Printer

The rally that has been seen in the stock market this year is primarily because the Fed themselves bought billions of dollars worth of corporate bonds, indirectly helping these big companies refinance. They basically did this so there wouldn’t be a major collapse when the economy came to a halt during the peak of the coronavirus.

They have announced they will stop the corporate bond-buying “later this year.” That was in late September. The program was a life-vest around the economy, and with it coming to an end, the market is in a perilous position. The Fed’s balance sheet has grown to over 8 trillion since 2020, nearly doubling in size.

As Rick Spano noted: “The Fed didn’t just fire a bazooka to fight the global economic shutdown, it was a monetary mushroom cloud.” The overall corporate bond market is now than $10 trillion in size. In short, the 100% climb in the S&P this year is unnatural, it has been propped up to the utmost degree. With inflation peaking, interest rates at zero, the market overleveraged, overbought, and overvalued, the situation is dire.

Crypto’s Relationship With The Stock Market

So what does that mean for crypto? Well, according to data from VanEck, in the last three years Bitcoin has “gone from being positively correlated with the S&P 500 in 2018 (0.04) to negatively correlated in 2019 (-0.09), and finally back to positively correlated in 2020 (0.22).” However, Bitcoin is more correlated with Gold than the S&P–and as goes Bitcoin so does the rest of the crypto market.

The Bitcoin adoption by institutions has increased the correlation, at least that is highly plausible. The correlation has seen a massive upsurge since August, it is unclear exactly why. As you can see in the chart from Bloomberg below, the correlation is on a major uptrend.

However, the notion that Bitcoin is a safe-haven asset leads to ebbs and flows in the correlation, as the chart above clearly shows. The takeaway is to be aware of the fact that the broader market conditions tied up in the equities market and governed by the Fed and politicians alike put crypto investors in many ways at the mercy of these forces.

With institutional and venture capital money flowing in by the billions, the correlation may increase, and the crypto market can no longer exist in a vacuum.

The post Data Shows Stocks Historically Overvalued: What Does This Mean For Crypto? appeared first on CryptosRus.