Bitcoin And S&P 500 Are The Big Winners Of The First Quarter, Despite Higher Bond Yields — What Is Next?

Bitcoin and the large-cap stocks included in the S&P 500 index were the big winners on Wall Street for the first quarter of 2024.

The digital currency ended the quarter hovering around $70,000, up 65%, on solid buying from spot ETFs launched by Wall Street financial powerhouses and the prospect of a tighter supply on the upcoming halving in April.

"The rise in Bitcoin ETFs, coupled with the transformation of Grayscale's Bitcoin Trust (GBTC) into an ETF structure, has led to a significant surge in assets under management (AUM) for Bitcoin-related investment products," said Ronen Cojocaru, CEO at 8081. "These ETFs collectively hold a substantial amount of Bitcoin, valued at approximately $27.5 billion in AUM. It underscores the increasing institutionalization of Bitcoin and the broader cryptocurrency market, as traditional financial institutions acknowledge the investment potential and diversification benefits digital assets offer."

The large cap dominated S&P 500 finished the quarter at 5,254.35, up 10.16%. Next on the list of winners for the quarter was the tech-heavy Nasdaq, at 16,379.46, up 9.11%; the Dow Jones, at 39,807.37, up 5.62%; and the Russell 2000, at 2124.55, up 4.81%.

The gains in Bitcoin and equities came despite higher bond yields. The benchmark 10-year U.S. Treasury bond ended the quarter with a yield of 4.20%, up from 3.90% at the beginning of the quarter and close to the quarter high of 4.32%.

Treasury bond yields rose throughout the quarter as a resilient U.S. economy kept inflation elevated, prompting the Federal Reserve to postpone interest rate cuts.

The solid fourth-quarter GDP report released last week confirms the U.S. economy's resilience. It was a tailwind for equities throughout 2023 since equity markets typically move ahead of the economy.

"The final estimate for real U.S. Q4 2023 GDP was revised from 3.2% to 3.4%," said Michelle Cluver, Head of ETF Model Portfolios at Global X. "This reflects the continued resilience of the U.S. economy. It is encouraging that this upward revision primarily came from consumer spending and nonresidential fixed investment."

Ryan Detrick, Chief Market Strategist at Carson Group, likes the rebound in consumer spending, a critical driver behind the robust GDP growth. "Spending rebounded to up 0.8%, well above expectations and the lull to start the year," he observed. "The consumer is the biggest part of the economy and shows little signs of slowing down with the labor market strong."

Cluver sees the upward revision of personal savings to slightly to 4%, as another positive for equities.

"The stock market performed extremely well during the first quarter of 2024, and as long as earnings remain strong, the market can continue to move higher," said Jeremy Straub, CEO and chief investment officer of Fort Lauderdale-based Coastal Wealth.

"While rate cuts from the Federal Reserve would be welcome news for stocks, they are not a requirement for a strong market. The market has been able to rally for the past 18 months even with high interest rates, and we believe stock investors are adjusting to this new normal of higher interest rates," Straub added.

Looking forward, Cojocaru sees Bitcoin continuing to assert its dominance in the cryptocurrency market, maintaining a significant lead in market capitalization and overall market share.

As for stocks, Straub sees the first quarter earnings season as the next driver of market sentiment, which right now remains very optimistic.

Meanwhile, according to FactSet, equity analysts remain skeptical, cutting earring estimates during the first quarter, though by a smaller margin than average. "The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) decreased by 2.5% (to $54.94 from $56.34) from December 31 to March 27," said John Butters, Vice President of FactSet in a recent post.