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Ethereum helps push the crypto sector higher … Intel warns Congress about moving to Europe … pessimism in the homebuilding sector … how are earnings coming in so far?
There are lots of portfolio-shaping news stories hitting the headlines. So, let’s take a spin through the investment universe to make sure you’re up to speed.
***Is crypto setting up for a sustainable bull run?
In early June, bitcoin’s price fell off a cliff, dropping from the $30,000 level to $20,000. This fall took the entire sector down with it.
Since then, the grandaddy crypto has been bouncing between roughly $18,000 and $21,000, seemingly unable to make up its mind about where to go next.
Yesterday, bitcoin bounced above $22,000, hitting its highest level in more than a month. As I write on Tuesday, it trades around $22,200.
Importantly, we’re seeing gains across the broader altcoin sector. Polygon’s MATIC surged as much as 21%. Cardano added 8%. And Ethereum, the world’s second largest cryptocurrency, added 9%.
Pulling back and looking at seven-day performance is even more impressive.
MATIC is up 58%. Cardano is up 16%. And Ethereum is up 43%.
Some of the gains are coming from bullishness based on Ethereum’s announcement of the specific date that it will be converted to a proof-of-stake consensus mechanism. This news was announced last week and the merge is targeted for September 19.
Beyond Ethereum-related bullishness, the gains seem to be coming from shifting sentiment that’s rooted in the hope that we’re nearing the end of the wipeout.
In yesterday’s issue of New Digital World, our crypto expert Ashley Cassell highlighted analysis from Glassnode that helps explain the bullish push higher:
A common thread amongst almost all metrics explored above, is a trend resembling the majority of bear market lows in the past, albeit lacking a component of duration.
Our other crypto experts, Luke Lango and Charlie Shrem of Ultimate Crypto, are noting a bottoming as well:
Another week, another round of evidence that cryptos are working through a bottoming process and preparing for their next boom cycle.
That may sound unrealistically optimistic, given the wave of crypto news this week, including the Celsius bankruptcy, the Voyager bankruptcy, and reports that the 3AC fund managers have gone missing (which, in our opinion, is one of the most absurd stories we’ve read all year).
All bad news, yes. But markets are discounting mechanisms – they price the “bad news” in before it happens. And we increasingly believe that most of the shoes that needed to drop in the crypto industry, if you will, have already dropped.
Luke and Charle then highlight a mountain of bullish data (Ultimate Crypto subscribers, make sure to get all those details in Saturday’s update. For non-subscribers, we don’t have room to cover it all in today’s Digest.)
They conclude with:
In other words, there is a plethora of important on-chain data which strongly imply that the worst of the crypto crash is over.
If you’re a crypto investor with open positions, this is encouraging news. And if you’ve been watching the sector looking for signs that it’s turning north, offering a buying opportunity, that moment could be nearly here.
Here’s Luke and Charlie’s bottom line for now:
…We’re looking for BTC to breakout in the short-term to the $23,000 level.
If that happens, we’d grow more bullish on our consolidation thesis and may even pivot to thinking that a sustainable rebound is in the cards.
***Meanwhile, Congress needs to get off its butt if it wants to help the U.S. semiconductor industry
To make sure we’re all on the same page, semiconductors are materials that can conduct electricity under certain conditions. This makes them great mediums for controlling electric currents – and a critical component of virtually every electronic device with an on/off switch.
Basically, semiconductors are a “must have” in any technology product. Our world would be unrecognizable today without them.
Now, most of the world’s semiconductor chips are made outside of the U.S. Back in 1990, the U.S. made roughly 37% of chips globally. Today, the number has dropped to 12%.
If we focus on the world’s most advanced semiconductors, 92% of global capacity comes from Taiwan.
Given the geopolitical tension between the U.S. and China over Taiwan today, as well as the U.S.’s overall low production output, there’s been a push to bring semiconductor production back to U.S. shores. That’s why it was such big, welcomed news in January when Intel announced that it was planning to build a $20 billion chip foundry in Ohio.
Well, according to Intel CEO Pat Gelsinger, Congress better quit the bickering and pass a bill helping the U.S. semiconductor industry, or else Intel is headed to Europe.
We’ve made super clear to McConnell, to the Democrats, to the Republicans, that if this doesn’t pass, I will change my plans.
The Europeans have moved forward very aggressively, and they’re ready to give us the incentives that allow us to move forward.
According to Senate Majority Leader Chuck Schumer, voting in the Senate will begin today.
…The bill would include, at a minimum, billions of dollars in subsidies for the semiconductor industry and an investment tax credit to boost U.S. manufacturing.
Lawmakers hope to pass the legislation and send it to the White House for President Joe Biden to sign into law before they leave Washington for their annual August recess…
The planned legislation would be a condensed version of a bill the Senate passed in June 2021 that included $52 billion for chip subsidies and authorized another $200 billion to boost U.S. scientific and technological innovation to compete with China.
Should the bill pass, it will serve as a strong tailwind for a sector that’s been selling off hard all year.
However, as you can see by looking at the semiconductor ETF SMH below, chip stocks are trying to bounce and begin a new bullish push.
We’ll keep you updated on the bill’s progress.
***Over in the homebuilding sector, pessimism is spreading
U.S. homebuilder confidence plunged this month.
Yesterday, we learned that the National Association of Home Builders’ (NAHB) monthly confidence index nosedived 12 points in July to 55. The reading came in far worse than the expected number of 66. This is the second largest decline in the history of the index.
It’s noteworthy that all three components of the index fell.
Here’s MarketWatch with more:
The gauge that measures current sales conditions fell by 12 points; the component that tracks traffic of prospective buyers fell by 11 points; and the gauge that assesses sales expectations for the next six months fell by 11 points.
It will be important to watch how this impacts housing supply. Over the last year, the shortage of housing inventory relative to demand has helped push home prices to record levels.
Combine those record prices with mortgage rates that are now hovering near their highest levels since 2008, and housing affordability has turned into a massive problem.
Worse, like inflation, this housing inventory/affordability interplay risks turning into a negative, self-reinforcing loop:
Nosebleed housing affordability is hurting demand… Low demand disincentivizes homebuilders from building new homes because they’re worried about being stuck with unsold product… The lack of new homes keeps the supply/demand balance out of whack and prices high… High prices keep housing affordability out of reach for many buyers…which disincentivizes homebuilders… rinse and repeat.
From Robert Dietz, chief economist at the NAHB:
Affordability is the greatest challenge facing the housing market. Policymakers must address supply-side issues to help builders produce more affordable housing.
We’ll keep our eye on this.
***Finally, what’s the early take on earnings?
For that answer, let’s go to FactSet, which is the earnings-data analytics company used by the pros.
From last Friday’s Earnings Insight:
The start of the second-quarter earnings season for the S&P 500 has been weaker than normal, as the number and magnitude of positive earnings and revenue surprises have been smaller than average.
As a result, there has been little improvement in the earnings and revenue growth rates for the second quarter since June 30.
Overall, 7% of the companies in the S&P 500 have reported actual results for Q2 2022 to date [as of last Friday].
Of these companies, 60% have reported actual EPS above estimates, which is below the 5-year average of 77%.
In aggregate, companies are reporting earnings that are 2.0% above estimates, which is below the 5-year average of 8.8%.
Obviously, it’s so early in this earnings season that we shouldn’t read too far into these results either way.
But as we’ve noted here in the Digest, this is a critical earnings season. Whether or not earnings match expectations will play a massive role in influencing the direction of the market as we head toward the fall and holiday season.
So far, while we can’t say results are great, they’re not awful. We’ll keep you updated.
Have a good evening,