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“I don’t think people understand there’s 100% correlation with what happens to a company’s earnings over several years and what happens to the stock.” – Peter Lynch

Morning stock market summary

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After a slow start, earnings season has picked up pace with around 60 US companies reporting results this morning. These companies have combined sales of $350 billion, and the results have been very positive. The EPS beat rate is at 77%, while the revenue beat rate is still high at 73%. Additionally, only two companies have lowered their guidance, while five companies have raised theirs.  It’s only one morning of results, but does this look anything like an earning collapse?

Despite this positive news, futures are lower, although not by a significant amount. Treasury yields have also decreased by 5 basis points or more across the curve. In the commodities space, crude, gold, and copper are all trading lower.

Even when you consider its volatile nature, bitcoin has had a notably strong six months, with its price almost doubling off the lows from last fall. The bulk of this rally occurred in the final months of 2022 and the first four months of 2023. However, there has been a moderate pullback in the last two weeks, as the rally lost momentum just as it was testing the 30,000 level. Over the past few days, bitcoin has been testing its 50-day moving average, which has held for now. If you are involved in crypto, it’s essential to watch this key level (~27,200).

Although bitcoin and the crypto space have little to do with the stock market, some traders monitor the space on the belief that they provide a good barometer of overall risk appetite. Trend changes in Bitcoin eventually bleed through to the equity market. Comparing the performance of the S&P 500 to the relative strength of Bitcoin versus the S&P 500 shows a loose but unconvincing link between the two series. The ratio of Bitcoin to the S&P 500 peaked about two months before the S&P 500’s peak in late 2021/early 2022. However, when the S&P 500 hit its recent low in October, it took another two months before the relative strength of Bitcoin began to pick up steam. Rather than leading moves in the stock market, shifts in the relative strength of Bitcoin tend to coincide with shifts in the S&P 500.

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