Bulls, Bitcoin, & Beyond

Market Moves Yesterday

S&P 500 @ 4,997.91 (⬆️ 0.057%)

Nasdaq Composite @ 15,793.72 ( ⬆️ 0.24%)

Bitcoin @ $45,955.40 ( ⬆️ 1.45%)

Hey Scoopers,

Happy Friday! The weekend is here (almost!)

👉 S&P 500 index touches 5k

👉 Japan’s stock market rally is under threat

👉 Bitcoin gains pace

So, let’s go 🚀

Market Wrap

The S&P 500 index finished little changed on Thursday after briefly topping the 5,000 milestone for the first time ever.

The markets have gained momentum in recent sessions due to strong earnings and an extended rally in mega-cap technology stocks.

To date, 319 companies, or 64% of the S&P 500 companies, have reported results, with 81% of these names topping earnings estimates. Around 63% of the companies have surpassed revenue expectations.

Based on the blended growth rate, earnings in Q4 are forecast to rise by 9% year over year.

What next for the S&P 500 index?

According to Deutsche Bank’s Binky Chadha, the S&P 500 index, trading around the 5,000 milestone, will power through in 2024 on the back of earnings growth.

The chief U.S. equity and global strategist at Deutsche Bank Securities maintains the S&P 500 will range between 5,100 and 5,500 in 2024.

Chadha explains, “We’ve got six quarters of solid growth. There’s been a lot of boogeymen in the closet, on the table, everywhere. ... The textbook tells you to worry, but there’s no sign of it.”

Trending Stocks

Pinterest - The stock is down 9% in pre-market trading today. It missed sales forecasts for Q4 but beat earnings estimates while issuing a weaker-than-expected guidance.

Cloudflare - Shares are up after the tech company surpassed consensus estimates while providing solid guidance. Big deals from new and existing customers propelled Cloudflare to a new record in annual contract value.

Expedia - The travel stock is down 14% despite surpassing earnings estimates in Q4. The company announced the departure of its CEO, Peter Kern.

What is Impacting Japan’s Stock Market?

Japan’s stock market has been on an impressive rally since the start of 2023, repeatedly breaching 33-year highs and outperforming the rest of Asia. However, investors are now worried about zombie companies impacting the momentum.

Japan’s Nikkei Stock Market Returns (January 2019-2024)

So, what are zombie companies? These are businesses that remain unprofitable and are wrestling with several issues. For instance, while zombie companies may be able to pay for operating costs and make interest payments, they might not have excess capital to invest in capital expenditures.

Japan has been wrestling with a zombie problem for a few decades. This issue is now coming to the fore as Japan is expected to raise interest rates this year for the first time since 2007.

Increased borrowing costs may put these zombie companies at risk of bankruptcy and bailouts. Japan ended 2023 with 250,000 companies that are defined as zombie businesses. In the last 11 years, zombie businesses have risen by 30%.

The COVID-19 pandemic accelerated this problem, with the number of zombie firms jumping by nearly a third between 2021 and 2022.

The number of zombie companies has grown due to low-interest loans that can be secured with any collateral, helping companies remain operational. For instance, to date Japan disbursed 2.45 million loans for 43 trillion yen to support small-and-medium businesses.

However, according to experts, zombie companies are majorly SMEs, which should not significantly impact equity markets. Large-cap businesses in Japan have strong balance sheets and healthy liquidity positions.

Japanese companies have a cash-to-market cap ratio of 21%, much higher than the 7% ratio for companies in the U.S. This ratio measures liquidity for companies, and a higher number is favorable.

Enough cash on the balance sheet provides companies with the resources to service interest payments and reinvest in growth projects.

Bitcoin Surges This Week

Bitcoin, the largest cryptocurrency in the world, has surged more than 10% in the last week and a half. The uptick in BTC prices has driven shares of cryptocurrency companies, including Coinbase, MicroStrategy, and Marathon Digital, higher as well.

Traders believe Bitcoin accumulation by large investors, also known as “whales,” has increased in the past two weeks.

Bitcoin prices have more than doubled in the last year and should move higher in 2024 due to the introduction of spot bitcoin ETFs, the upcoming halving event, and expectations of rate cuts in the second half of the year.

Headlines You Can’t Miss!

Softbank shares gain 15% on earnings beat

Google rebrands Bard AI as Gemini

Cocoa prices surge to all-time highs

Cloudflare stock surges post Q4 earnings

Bitcoin eyes $48,000 amid bullish sentiment

Chart of The Day

Credit card debt in the U.S. has climbed to $1.13 trillion, according to a Federal Reserve report. Moreover, credit balances have jumped 10%, with the average balance per consumer hitting $6,360, a historic record.

While inflation has cooled down, it continues to rise at a slower pace, driving consumer spending in the process. The consumer price index, an inflation metric, has fallen from 9.1% in June 2022 to 3.4% in December 2023.

Higher credit card balances have also driven delinquency rates across the board, rising 50% in 2023. A report from Transunion states that credit card bills due for 90 days or more have touched the highest level since 2009.

Credit cards can be used as a tool to provide you with short-term liquidity. For example, cardholders who make their payments on time enjoy benefits such as cashback and travel rewards.

Alternatively, interest rates on credit cards are among the highest and average over 20.7% right now. If you make minimum payments towards the average credit card balance, it will take you more than 17 years to pay off debt, costing you more than $9,000 in interest, given an interest rate of more than 20%.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.