Bitcoin Outpaces US Equities

Welcome to BRC’s Breakdown.

The big news this week was the United States’ strong GDP growth in Q3 2023. Global stock markets, from the US to India, continue to face headwinds amid ongoing conflict in the Middle East. This is also hurting the energy markets of the world.

First, let’s see how the markets fared this week:

Here’s a preview of what we’ll cover:

• Macro: US GDP Growth Continues To March On

• Around The World: Gold And Bitcoin Soar, Energy Sector Takes A Hit

• Bitcoin: The New Favourite Of Tech Growth Investors

• Tech And AI: GM’s Cruise Suspends Driverless Taxis

Macro: US GDP Growth Continues To March On

In the US Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.1 percent.

Globally stocks declined in the previous week:

• The US S&P 500 fell 2.5%

• India’s Nifty 50 declined by 2.52%

• The UK’s FTSE 100 was down by 1.5%

The reason for this is – rising geopolitical concerns. The energy sector was particularly under pressure with crude oil lower by 4% for the week.

Around The World: Gold And Bitcoin Soar, Energy Sector Takes A Hit

Bond yields globally declined slightly (10-year US yields lower by 6.9 basis points) with the key exception of Japan where the 10-year yield rose 3.2 basis points for the week. With the Japanese Yen crossing the psychological mark of 150 vs the US, the upcoming Bank of Japan meeting on October 31st will be closely watched for signs on whether the Yield Curve Control policy will be revised.

Gold continued its move up and is now past the $2000/troy ounce mark - a much-watched level. It is now up over 10% for the year, with returns having beaten both stocks and bonds this year.

Bitcoin continued its march up and the recent move to over $34,000 put the YTD returns at a staggering 105%. Ethereum has lagged this year but the YTD gains of 49% are nothing to sneeze at either.

September quarter earnings reports continue globally. In India, results have been broadly in line with expectations.

In the US:

• 49% of the companies in the S&P 500 have reported actual results for Q3 2023 to date.

• Of these companies, 78% have reported actual EPS above estimates, which is above the 5-year average of 77% and above the 10-year average of 74%.

• In terms of guidance for Q4, 67% of the companies offering earnings guidance have given negative guidance.

The energy sector has seen earnings decrease globally. In India, Reliance Industries' Oil-To-Chemicals business saw a 7.3% decline in revenue on a YoY basis. In the US, the energy sector has reported a YoY earnings decline of 38.1%. Another sector that has stood out in terms of earnings weakness was payments. Worldline's poor results led to a sharp decline in stock prices of payments companies in Europe & US.

The technology sector had large positive earnings surprises. Companies ranging from Amazon to Google & Microsoft delivered results much above consensus expectations.

Bitcoin The New Favourite Of Tech Growth Investors

Bitcoin fundamentally comes down to technology. Yes, it has “currency” in its name, but most investors don’t use it as a medium of exchange. They invest in it for its technology. Going by this line of thinking – “Bitcoin as a technology investment” – the digital asset has done well in 2023.

This year, Bitcoin is up by over 100%, while the NASDAQ is up by just 22%. The reason for this is less a “growth story” and more of “global conflicts and macroeconomic shifts.” US technology stocks also have not had a lot to write home about in this year.

Consider the recent move. This month, Bitcoin rose by over 30%. According to Coinbase Institutional, this move by Bitcoin was 4.3 standard deviations higher relative to previous months. US equities, on average, moved 2.5 - 3 standard deviations lower in the same period.

This divergence between Bitcoin and US equities underlines the difference in the growth stories of the two assets. US equities enjoyed an up-cycle since the low interest rate days during and post-COVID-19. Bitcoin’s story is more macro-focused currently, with the ETF hopes to add institutional interest to the fire.

GM’s Cruise Suspends Driverless Taxis

In 2016, America’s Big Three car company, General Motors, acquired a little-known San Francisco-based company for over $500 million. The company was called Cruise, with a mission to build driverless taxis using artificial intelligence. GM wanted to give Tesla, which was also testing driverless cars, a run for its money.

Last week, Cruise suspended its driverless cars due to several on-road incidents. The state’s driving authority said these driverless vehicles “are not safe for the public’s operation” since they pose an “unreasonable risk to the public.”

Cruise’s halt is not limited to California. The company suspended operations across the US to re-examine their – processes, systems, and tools.

This will put a dent in GM’s earnings as well. Recently, the company said it expects to generate $1 billion in revenue from Cruise by 2025. Last year, Cruise recorded sales of $106 million.

Top Headlines Of The Week

• Bitcoin catches Tesla’s market cap following rally

• Spot cryptocurrency volumes hit a six-month high

• Genesis Trading is sued by Gemini for $1.6 billion