Dow Tops 26K; Bitcoin Bites the Dust (Again)

I’m no Dickens, but I can tell you that Wednesday was a tale of two markets.

The main indices returned to their winning ways Wednesday. The Dow Jones Industrial Average, S&P 500 and Nasdaq all closed higher. Health and technology stocks were top performers. The Dow regained and kept the 26,000 mark. It had flirted with 26K on Tuesday, before falling back.

But cryptocurrencies continued their race to the bottom. After Tuesday’s bloodbath, Bitcoin dropped another 5.17% today. Ethereum, Ripple, Cardano, and Litecoin also plunged. Bitcoin is now 50% from its peak value.

The financial services sector was a laggard. Banks posted quarterly losses. The losses came as a surprise.

Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) today issued disappointing operating results. GS closed the day down 1.86%. BAC fell 0.19%.

Generally, fourth-quarter earnings have been robust. Among the 30 S&P 500 companies that have reported so far, three-quarters have exceeded earnings projections.

According to FactSet, the estimated earnings growth rate for the S&P 500 in the fourth quarter is 10.5%. All eleven sectors are expected to report earnings growth.

But the Federal Reserve’s tightening looms large. This bull is long in the tooth. When rates rise back to normal levels, share prices could revert to previous norms.

Rising wages could fuel inflation The Fed would hike rates faster. The government reported last Friday that the Consumer Price Index rose 2.1% over the last 12 months. But urban “hot spots” report inflation of 3%.

Competition grows for talented workers, especially in tech hubs. The soaring cost of living in these cities could foretell an overheated national economy.

Barometers for 2018…

Earnings reports in coming days could suggest the story for the rest of 2018. Negative surprises could move markets.

Key economic data is due this week. On the docket: housing starts, jobless claims, consumer comfort index (Thursday); consumer sentiment, and the Baker Hughes rig count (Friday).

The rig count should be healthy, as oil prices rise. On Wednesday, West Texas Intermediate rose 19 cents to close at $63.92 per barrel. Brent North Sea crude rose 16 cents to close at $69.31/bbl.

Economic fundamentals justify the enthusiasm in equity markets. Reports on Wednesday were positive. Government data showed U.S. industrial production rose more than expected in December. Industrial output jumped 0.9% last month, topping forecasts of a 0.4% increase.

But Wednesday showed again that the cryptocurrency market is volatile. Investors in cryptocurrencies shoulder outsized risk.

Bitcoin has been bullish over the long term. Bitcoin racked up a gain of 1,469% in 2017 and 125% in 2016. Its highest gain was 5,507% in 2013. But anything that rises that fast is speculative.

Fortunes have been made in Bitcoin. Wednesday showed that fortunes are being lost, too. The roller coaster nature of digital money could indicate a top in the broader indices.

Wednesday Market Wrap

  • DJIA: +1.25% or +322.79 points to close at 26,115.65
  • S&P 500: +0.94% or +26.14 points to close at 2,802.56
  • Nasdaq: +1.03% or +74.59 points to close at 7,298.28

Wednesday’s Big Gainers

  • Pure Storage (NYSE: PSTG) +10.71%

Analysts upgrade data storage firm.

  • CONSOL Energy (NYSE: CEIX) +9.87%

Coal producer’s restructuring boosts prospects.

  • Lam Research (NSDQ: LRCX) +7.72%

Chipmaker boasts robust order pipeline.

Wednesday’s Big Decliners

  • 3D Systems (NYSE: DDD) -7.70%

3D printing firm’s costs surge.

  • Ford Motor (NYSE: F) -7.02%

Auto maker gives weak 2018 guidance.

  • General Electric (NYSE: GE) -4.72%

Activist investor seeks breakup of industrial giant.

Letters to the Editor

“Should I invest directly in Bitcoin or is it too risky?” — Jerry R.

To profit from the cryptocurrency craze, you should focus on the picks-and-shovels plays. These are the firms that make the technology tools that cryptocurrencies need to function.

A key cryptocurrency need is security. Look to companies developing secure digital wallets.

A digital wallet allows users to make electronic transactions. This can include buying items online with a computer or using a smartphone to purchase something at a store. The user’s bank account can be linked to the digital wallet.

Digital wallets don’t directly store cryptocurrency. They store private and public keys and interact with blockchains. They allow users to send and receive digital currency and monitor their balance.

The interference of Russian hackers during the 2016 presidential election underscores cyber risks. This drama still unfolds in the investigation of Special Counsel Robert Mueller. Many Russian hackers get paid in cryptocurrencies. They’re also adept at stealing digital money.

Reports surfaced Wednesday that former Trump advisor Steve Bannon has been subpoenaed by Mueller. Expect revelations about Russian hacking. Firms that make security software should benefit.

Got questions about digital currency? I’m here to answer your questions:

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


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