Key Takeaways:
- Consumer staples rise in profits against the battered S&P 500.
- Expectations of risk-on-equity returns are low.
- Bitcoin hinted at decoupling from stocks, but it is too early to draw conclusions.
YEREVAN (CoinChapter.com) – In times of crises, like the 2020 covid-19 pandemic and the market turbulence that followed since, staple companies tend to do better than the more ‘exciting’ but risky tech sector, ringing warning bells for the broader economy, and, by extension, for Bitcoin and the cryptocurrency sector.
Consumer staples steal the show while S&P 500 expectations tank
In detail, consumer staples are essential products that people need regardless of their financial situation. Thus, they are prepared to cough up an extra buck on basic necessities such as toothpaste, toilet paper, groceries, etc.
During the previous year, while the S&P 500 stock market index earnings expectations were in the ditch, S&P 500 Consumer Staples continued to grow, as seen in the chart below.
Notably, the demand for these companies’ products has not increased over the last 12 months. The whole point of staple goods is that demand for them is constant. The reason profit estimates are rising is that staples providers are demonstrating that they have pricing power.
Conversely, discretionary companies can’t get away with the same pricing policy during crises, as their products are not essential. Thus, consumers stop buying them, which also constitutes a recession red flag.
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Steve Sosnick of Interactive Brokers illustrated the toothpaste principle giving Chipotle Mexican Grill (CMG) as an example.
CMG is setting a new all-time high after beating estimates. […] The company’s CFO stated that lower-income customers are returning to the restaurants even as prices have risen by about 10%. In short, CMG has found that they can pass along price increases to their customers without penalty.
said the expert.
He noted that CMG is not alone. Coca-Cola, Pepsi, McDonald’s, and Procter & Gamble also beat analyst consensus estimates and cited their ability to pass along price increases during their earnings calls.
Will Bitcoin suffer alongside stocks?
Judging by the graph above, sellers appear to be betting that consumer discretionary stocks, which tend to fare better amid a strong economy, will struggle as high inflation drags on and the Federal Reserve plans to keep its benchmark rate near 5%.
Furthermore, consumer confidence index (CCI) reached a level of 2020 lows despite the year-to-date uptick.
Meanwhile, Bitcoin and the whole crypto sector might face the same bearish fate, due to the correlation between the flagship crypto and the stock market fluctuations.
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Bitcoin rally might be short-lived
In mid-March, crypto analyst and author Glen Goodman said it was “fascinating to see bitcoin break away from its correlation with stocks… and instead align itself with gold.” He added: “Has the ‘BTC is a store of value, its digital gold’ narrative returned? Clearly [the SVB collapse] has shaken faith in traditional banks.”
Analytical platform Kaiko also noted that Bitcoin’s correlation with gold hit the highest point in two years, sparking hopes in the crypto community.
However, Bitcoin’s digital gold narrative is likely short-lived. The flagship crypto struggled below $30,000 on April 28, fluctuating around $29,000, while still displaying erratic correlation with the S&P 500 index.
Therefore, a brief period of narrative change is not enough to draw long-term conclusions. The upcoming sessions will show if the flagship crypto has truly decoupled from the risk-on equity market. For now, investors should be on high alert, and take the bullish Bitcoin predictions with a grain of salt.
