Last week cryptocurrency markets grew about $14 billion in total market capitalization. Traditional markets also rallied for the second week in a row as investors are betting on the ultimate economic recovery. Crypto markets followed traditional market sentiment to the upside, and digital asset investors use their $1,200 stimulus checks to purchase crypto.

Cryptocurrency Markets 

As discussed above, global cryptocurrency markets added $14 billion in value last week. XRP was the only digital asset in the top 10 that saw negative returns. Among a list of cryptocurrencies in the top 25 by market capitalization, Binance Coin ( BNB ) has the best week – surging +14.39%

Cryptocurrency 5 Day Performance
Bitcoin + 3.48%
Ethereum + 8.82%
XRP -0.08%
Litecoin + 0.60%
Binance Coin + 14.39%
EOS + 5.60%
Chainlink + 6.86%
Tezos + 7.77%
Stellar + 1.26%

Cryptocurrency Market Sentiment 

Crypto markets have been highly correlated to traditional markets since Coronavirus started disrupting the environment. The markets seemed to follow positive sentiment in traditional markets. As we further discuss below, millions of Americans received their $1,200 stimulus checks this week. The other positive for crypto markets this week was fueled by the stimulus checks. It appears that more Americans are expressing interest in digital assets. Opposed to Americans saving the stimulus checks or covering expenses, it appears they were buying crypto. CEO of Coinbase, Brian Armstrong shared shocking data from last week. According to the post, the cryptocurrency exchange saw people buying and depositing in increments of $1,200 which was right around the time the stimulus checks were being dispersed to millions of individuals.

Traditional Markets 

After gruesome unemployment data, it became evident that investors are betting on the ultimate economic recovery. The market grew for the second week in a row as investor sentiment shifted to bull mode based on reports that Coronavirus cases were peaking and that the government was rolling out plans to open up certain states.

Index Week YTD
Dow Jones +2.2% -15.9%
S&P 500 +3.0% -11%
NASDAQ +6.0% -3.6%
Oil +10.4% -58.9%

Positives Investors Are Betting On 

Limiting The Virus Spread – The world has now seen 2M+ cases and 688,000+ in the U.S alone. With some states reportedly hitting peak levels, president trump announced that states would start to reopen in the form of state governors implementing different “phases” that states would have to pass in order to get to full reopening.

Federal Reserve Aid + Fiscal Policy – Many investors believe the financial aid will result in a fast economic recovery post Coronavirus. The Federal Reserve has injected $2.3 trillion in loans, many of which are aiding small to medium size businesses. In addition the CARES legislation injected another $2.2 trillion in the form of direct payments to consumers and businesses. This was non-existent in 2008 which is what investors are betting on right now. Many believe this type of stimulus could result in a much quicker than expected financial recovery.

What Investors Are Forgetting 

Unemployment – Jobless claims increased for the 3rd week in a row. 22 million Americans are now either unemployed or being furloughed. This means that essentially all jobs created since March 2009 have been abolished. Despite this being temporary, it’s extremely hard to forecast how quickly these people will get back to work.

Coronavirus 2nd Wave – The administration already mentioned that there’s the possibly Coronavirus could experience a 2nd wave. Despite health professionals believing we have the proper protocols in place to handle such a situation, it’s definitely a risk to the market. With the amount of stimulus the Federal Reserve has deployed during the initial shutdown, it’s hard to imagine it would go as smoothly a second time around. In addition, states run the risk of opening up too early.

Money Drying Up – The CARES Act Payment Protection Program (PPP) ran out of funding last week. With many states potentially months away from opening up, it will be crucial for more funding. With Democrats and Republicans arguing over terms, it’s unknown if / when more funding will be approved. The longer this drags on, the harder it will be for companies to on-board employees they fired or furloughed.

Company Earnings – With earnings season around the corner, many companies will start to rear their ugly head. With minimum operations the last 2 months, companies will miss earnings expectations. The banks already started reporting and saw ugly metrics. JP Morgan for example saw a -69% drop in profits. The bank had to set aside almost $7 billion in reserves to protect against upcoming loan defaults.

S&P 500 Overvalued – Since the late 1800’s the cyclically adjusted PE ratios have been a strong tool to assess inflation adjusted PE ratios. The historical average for the S&P 500 has been right around 16.70. As of early last week, the S&P500 was sitting at 26, which meant the S&P 500 was valued at a +36% premium. With earnings season expected to be a sore subject, it’s extremely hard to believe the S&P will maintain such a premium to historical averages. It’s the very reason some investors believe the markets could see another leg down.

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