YEREVAN (CoinChapter.com) – The US stock market had another rough week, with the S&P 500 index crashing 6.3% since Sep 19. However, there are reasons to suggest the current bear market has not bottomed out yet, based on the previous crashes.
Moreover, analyzing the stock market would shed more light on Bitcoin’s future price action based on its established correlation with the risk-on assets.
S&P 500 will still decline, says analyst
In detail, Michael Kramer, the founder of Mott Capital Management, pointed out several similarities between the current bear market and the previous ones, for example, in 1937, 2000, and 2009.
Thus far, those bear markets have given us a reasonably good guide for what may happen next. Based on those charts, it looks like this recent slide lower in the S&P 500 isn’t about to end anytime soon.
commented Kramer, adding a chart to the analysis.
The chart below illustrates the S&P 500 index movement during the four mentioned periods: 1937, 2000, 2009, and 2022. The graphs nearly coincide, making future predictions fairly plausible.
Mott Capital founder also noted that the stock market decline would likely continue because it has been slower than the rise in bond yields. In detail, the Fed hiked up the interest rates in an attempt to combat rising inflation and tanked the bond prices, making the bond yields rise.
The gross aggregate dividend yield for the S&P 500 has risen to 1.79%. That is in line with prior low yields seen at previous market peaks such as April 2010, February 2011, January 2018, October 2018, and February 2020. That floor in the dividend yield even goes back to around 2006.
Additionally, that analyst noted a “massive divergence between rates and stocks.” He pointed out that the S&P500 dividend yield has risen by 28 bps since mid-Aug 2022. Simultaneously, the 10-year rate has increased by more than 110 bps since the same period. Currently, the S&P500 bond yield trades 189 bps below the 10-year rate, its lowest level since 2010.
What about Bitcoin?
Bitcoin has often been hyped as an “inflation hedge” and called “digital gold.” However, the previous months witnessed a unison between the alpha crypto and risk-on assets once the money printer halted. Furthermore, the evidence to support the claim is mounting, as Bitcoin price action mimics that of stocks, albeit with higher volatility.
In August, Morgan Stanley analyst Sheena Shah commented that wide adoption as payment is one of the possibilities for Bitcoin to decouple from risk-on assets.
The correlation between bitcoin and equity indices has remained high and will continue to do so unless bitcoin becomes widely used as a medium of payment – which looks unlikely to happen soon.
said the expert.
As the wide Bitcoin adoption is yet to come, its correlation to S&P 500 is likely to continue in the upcoming quarter, possibly pushing the alpha crypto south of the current $19,100 price on Sep 27.
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