Bitcoin’s loss is the stock market’s gain as investors rotate out of crypto and into equities, Vanda Research says

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  • The recent decline in bitcoin represents the early days of a crypto-to-equity rotation, according to Vanda Research.
  • Stocks and cryptocurrencies have been negatively correlated since March, according to Vanda.
  • “With momentum in cryptocurrencies stalling, we expect some of the money to slowly flow into equities again,” Vanda said.
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Bitcoin’s loss is the stock market’s gain as investors rotate out of cryptocurrencies and into equities, according to a note from Vanda Research.

The firm said it is “early days” in the rotation, which no doubt accelerated over the past week with bitcoin and ether both falling more than 30% in a single day.

“With momentum in cryptocurrencies stalling, we expect some of the money to slowly flow into equities again,” the note said.

That rotation has been on full display recently, with retail investors actively buying the dip in equities as cryptocurrencies sold off. Over the past week, bitcoin is down about 15%, whereas the S&P 500 is up about 1%.

Most equity purchases have been concentrated in equity index-ETFs, rather than single stock purchases, according to Vanda.

“We attribute this dynamic to the lack of clear opportunities in retail favorite stocks like EVs, hydrogen, cannabis and the ARKK complex, which is driving retail investors to purchase indexed funds instead,” the note explained.

The rotation into stocks and out of crypto has been slowly building since March, which is when both asset classes began to see negative correlation, according to Vanda, representing “a sign that retail money was flowing back and forth between them.”

The rotation back into stocks among retail investors could accelerate further if large cap technology stocks regain their footing and begin to rally. The sector is one of the worst performing groups of stocks year-to-date, far lagging the energy, financials, and materials sectors.

“Because a large part of their portfolio is tilted towards the [tech] sector, a rebound will help them to cover some of their recent losses and rebuild the capital buffer to take on riskier bets,” the note concluded.

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8 different areas have taken turns leading the latest bull market in stocks – and that diversity is part of what makes the climb so sustainable, says one Wall Street chief strategist

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  • The bull market in stocks is not being driven by one dominant sector, according to a Thursday note from Leuthold Group’s James Paulsen.
  • “It looks like a self-sustaining bull” as the rally in stocks rotates to different areas of the market, Paulsen said.
  • These are the 8 sectors that are driving a healthy bull market rally in the stock market, according to the note.
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A common saying on Wall Street is “sector rotation is the lifeblood of a bull market,” and Leuthold Group’s chief investment strategist James Paulsen seems to agree.

In a Thursday note, Paulsen highlighted the eight sectors that are driving a healthy rally in stocks since the March 2020 pandemic low, creating “a self-sustaining bull.”

Those areas of the market that have helped drive upside in the stock market while not consistently driving the action include: value, growth, cyclical, price momentum, high quality, small cap, emerging markets, and high beta, according to Paulsen.

“Although each of these has had its day in the sun, no single investment attribute has persistently dominated since the bull market began after the March 23, 2020 bear market low,” Paulsen explained.

While growth, quality, and momentum drove the bull market in its early days last year, leadership in the stock market has more recently been taken over by cyclicals, value and small caps.

“The stock market hasn’t yet been monopolized like past bull markets,” Paulsen said, pointing to examples like energy in the 1970s, technology in the 1990s, and financials in the early 2000s. Instead, the market has trended higher, regardless of which area of the market is leading at any particular time, which is a healthy characteristic of market uptrends.

The only sectors that have failed to lead the market higher in this bull cycle are defensives, like utilities and consumer staples.

“Not surprisingly, ‘playing defense’ in this Bull has proven to be a chronic loser,” Paulsen said.

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