The US economy has a good start in 2024. Although the rise in CPI may delay the time of interest rate cuts, the bright situation reflected by the beautiful US economic data has brought sufficient confidence to the market (especially consumers). US 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 was released in the United States: 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 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 on 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 PMI that exceeded expectations 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, with the annualized quarterly growth rate of US GDP in the fourth quarter reaching 3.3%, while the expected value was 2%. So far, the annual growth rate of 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 has 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, and this 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, last year the market continued to live in anticipation of the Federal Reserve's interest rate hikes, and large-cap stocks with "good performance and beautiful appearance" (especially big7 stocks with clear expected support from AI) had extremely high risk-avoiding properties; on the other hand, as the market began to turn, In anticipation of interest rate cuts, 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 to maintain the risk aversion mentality of last year and continue to be conservative and united.
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 years, and cash flow also fell by 42%.
Other markets also performed positively in January, especially Japan and India. The Mumbai Sensex30 index reached a high of over 73,400 points this month, setting a new record high; Japan's Nikkei 225 index approached 37,000 points, very close to 38,957 points in 1990, striving to recover the "lost thirty years"; Germany's DAX and France's CAC40 are currently trading sideways at high levels, with no obvious technical risks.
As expected, on the 11th of this month, the spot ETFs of 11 companies were collectively approved as scheduled. From this moment on, ordinary US 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 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 they made huge profits and could not redeem for a long time, 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 also 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 - the influx of incremental funds. ETFs provide a more convenient way for retail investors and institutions 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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