The Invesco QQQ (QQQ) and the SPDR S&P 500 (SPY) ETFs are having a good year as American stocks continue soaring. QQQ has soared by 12% this year and is at its all-time high of $460.
Similarly, the SPY fund has jumped by over 11.47% in 2024 and is trading at $530 while the SPDR Dow Jones Industrial Average ETF (DIA) has risen by 3%. This article explores how these funds’ performance will impact Bitcoin and other cryptocurrencies.
Why US equities have surged
There are three primary reasons why the QQQ and SPY ETFs have surged to their highest level on record. First, there is the ongoing demand for technology companies like Nvidia, Meta Platforms, Microsoft, and Google.
Nvidia has become the poster child of this demand because of its role in the artificial intelligence (AI) industry. It recently published strong financial results that revealed its revenue surged by over 200% in the first quarter. It made over $24 billion in Q1, a figure higher than what it made in the whole of 2019. Technology stocks are major components of the SPY and QQQ ETFs.
Second, stocks have soared because of the strong earnings releases. Recent data by FactSet showed that earnings grew by 6% in the first quarter of this year. That was the best quarterly earnings growth since the first quarter of 2021 and the trend may continue in the coming months. Super Micro Computer, Microsoft, and Netflix are some of the top companies that published strong results.
Third, there is a rising chance that the Federal Reserve will start cutting rates later this year if inflation continues falling. In most cases, stocks do well when the Fed has turned dovish. For one, lower rates will lead to rotation from money market funds that have over $6 trillion in assets to equities.
There are other reasons why the S&P 500 and Nasdaq 100 indices have surged. For example, there is a strong demand for US equities from foreigners and analysts have become extremely bullish on the equities market. Indeed, Morgan Stanley’s Mike Wilson, a well-known bear, has recently turned bullish and boosted his outlook for the S&P 500.
Bitcoin vs S&P 500 vs Nasdaq 100 vs Dow Jones
Implications on Bitcoin and crypto
The ongoing surge of US equities has a major impact on the performance of cryptocurrencies. First, the stock surge could negatively impact Bitcoin and other digital tokens like Ethereum, Ripple, Cardano, and Avalanche. That will happen as investors rotate from the risky crypto industry into the stock market.
Second, on the positive side, the surge could actually incentivize investors to diversify their assets to the crypto industry. This is more important now that institutional investors have access to spot Bitcoin ETFs that let them invest without the need for wallets.
Historically, there has been some correlation between stocks and Bitcoin. For example, Bitcoin and stocks plunged by double-digits in 2022 and have now risen by double-digits this year.
This correlation happens because of the risk sentiment in the market. As we saw in 2021, a risk-on sentiment leads to animal spirits in the market and the purchase of most assets and vice versa.
