Bitcoin Frenzy Grabs Spotlight as Markets Close Higher

Major indices closed in the green Monday. Technology stocks led the way, as their recovery from last week’s slump continued. Morgan Stanley (NYSE: MS) issued bullish guidance for large-cap tech shares in 2018. “FAANG” stocks are back in the driver’s seat.

But wait, you say. What about those pesky valuations? Traders are too giddy to care. Analysts who warn about high multiples are skunks at the garden party.

The Labor Department’s payrolls report on Monday fueled optimism. Nonfarm payrolls rose by 228,000 jobs last month, beating expectations of 200,000 jobs. Robust jobs data increase the odds that the Federal Reserve will hike interest rates this month.

Bitcoin (BTC) made headlines Monday. Bitcoin futures began trading on the CBOE on Sunday evening. Reception was feverish. Prices soared and triggered circuit breakers.

Bitcoin closed Monday at $17,289.12 per coin. The cryptocurrency is volatile. Last Wednesday, the price of Bitcoin rose and fell $3,000 within hours. It passed $10,000 in November.

Tax overhaul loomed large Monday. Lawmakers are forging a unified bill, but snags are emerging. The House and Senate versions widely differ. The leadership broke promises to moderate Senators whose votes are crucial. But when the dust clears, the corporate tax rate is likely to fall from 35% to 20%.

One winner will be banks. Banks benefit from lower tax rates because they take few deductions. The financial services sector was a top performer Monday.

Walt Disney (NYSE: DIS) drew attention Monday. Uncle Walt’s Empire and Twenty-First Century Fox (NSDQ: FOXA) are completing a deal for Disney to buy Fox’s film and TV production assets. Disney seeks streaming clout to go after Netflix (NSDQ: NFLX).

Fox’s assets would make Disney a digital powerhouse, transforming the media landscape. Disney on Monday gained 2.48%. NFLX fell 1.23%.

As 2017 comes to a close, tax overhaul won’t jolt markets. For Wall Street, stimulus is nice but not necessary. The market’s catalyst will come courtesy of the Federal Reserve. The Fed meets Tuesday.

Traders expect a third interest rate hike this month and three more in 2018. The betting is that the Fed will boost its benchmark rate by one quarter of a percentage point on Wednesday.

The Fed is trying to keep economic growth at a sustainable pace. Goldman Sachs (NYSE: GS) predicts that stocks will gain 11% in 2018. Is this bullishness justified? Look to the economic calendar for clues.

Wednesday: MBA Mortgage Applications and Consumer Price Index.

Thursday: Jobless Claims, Retail Sales, and Consumer Comfort Index.

Friday: Industrial Production and Baker-Hughes Rig Count.

Economic reports in recent months have beaten expectations. Analysts expect this week’s numbers to be solid. At the same time, the inflation beast remains tame. Growth is not too hot, not too cold. The Goldilocks sweet spot. Monday’s numbers were sweet, too.

Monday Market Wrap

  • DJIA: +0.23% or +56.87 points to close at 24,386.03
  • S&P 500: +0.32% or +8.49 points to close at 2,659.99
  • Nasdaq: +0.51% or +35.00 points to close at 6,875.08

Monday’s Big Gainers

  •  PROS Holdings (NYSE: PRO) +15.77%

Cloud firm’s Q3 earnings beat expectations.

  • CenturyLink (NYSE: CTL) +8.21%

Fraud probe clears telecom.

  • 22nd Century Group (NYSE: XXII) +6.79%

Legal trends lift marijuana biotech.

Monday’s Big Decliners

  • Hornbeck Offshore Services (NYSE: HOS) -8.59%

Operating results fail to impress.

  • SCANA (NYSE: SCG) -6.17%

Failed nuke project weighs on utility.

  • Avon Products (NYSE: AVP) -4.57%

Q3 earnings disappoint.

Letters to the Editor

“Am I crazy, or do the events of the past week have all the hallmarks of an organized manipulation of Bitcoin prices, timed specifically to peak in advance of the launch of the first Bitcoin futures market this week?

The totally irrational 40% jump on Thursday followed by the short notice and weekend market launch would be precisely what I would want to have in place if I was planning to purchase an immediate short position.

That is assuming of course that I knew the exact launch date in advance. To me, the whole thing reeks with the stench of insider manipulation on a grand scale, and possibly even government collusion.” — Randy J.

Randy, I can’t speak to your theory. Perhaps you’re right. But I can tell you that Bitcoin is too risky.

Bitcoin came onto the scene in 2008, making it the first cryptocurrency. It’s the best known. What’s the benefit of digital currency? It’s a peer-to-peer value transfer. Third parties aren’t needed.

Fortunes have been made in Bitcoin. Fortunes will be lost. The fraud you suggest is possible. One risk is that governments can ban cryptocurrencies. China recently did.

Beware the madness of crowds. I have two words for you: Dutch tulips.

What’s your view of Bitcoin? Is it a compelling opportunity, or a dangerous bubble? Drop me a line:

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.