Stock Market Correction Warning Suddenly Turns Red As Nvidia, Apple, Tesla Crash

Updated 11/07 below. This article was originally published on July 10

Stock markets are surging after Federal Reserve Chairman Jerome Powell fanned the flames of interest rate cut hopes in September, just after issuing a “critical” warning.

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The S&P 500 and Nasdaq hit new all-time highs, following in the footsteps of the Dow, which peaked in May, despite renewed fears of spiraling debt that are unnerving traders.

As uncertainty now hangs over the White House, one analyst noted that an unexpected red flag in the stock market is just beginning to flash.

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The recent crash in bitcoin and cryptocurrencies, which saw $500 billion wiped out of the combined market in just over a month, could be about to trigger “an imminent summer correction in the S&P 500,” said Barry Bannister, managing director and chief equity strategist at Stifel. said MarketWatch.

Update 11/07: The S&P 500 and indexes fell sharply on Thursday, posting their worst performance since late April, as recent winners from tech giants including Nvidia, Apple and Tesla slumped.

The pullback came after the latest inflation data accelerated expectations for a September Federal Reserve rate cut, with interest rate futures now showing traders see a more than 90% chance the Fed will cut rates by its September meeting, up from about 74% on Wednesday, according to CME Group's Fedwatch.

“It is clear that the continued downward trend in headline inflation will add weight to the case for a Fed rate cut, as markets largely expect in the fourth quarter of this year,” Adrian Li, managing director at corporate financial adviser Centrus, said in emailed comments.

“The exact timing of the rate setting remains uncertain, however, and may ultimately depend on the Fed's ability to balance inflationary risks and the perceived risk of elevated rates against the continued strength of the U.S. economy. All eyes will now turn to any additional guidance on the direction of monetary policy ahead of the rate decision at the end of the month, with the next unemployment and nonfarm payrolls figures not due until early August.”

Bannister highlighted bitcoin's correlation with stock markets, particularly the tech-heavy Nasdaq, in recent years.

“It’s the availability of cheap liquidity from the Fed that’s driving the price of bitcoin,” Bannister said. “Every accommodative pivot over the last 13 years has been a big rally in bitcoin, and bitcoin is a non-interest-bearing asset that thrives on lower interest rates and available liquidity,” much like stock markets.

On his second day of testimony before Congress this week, Fed Chairman Powell said he has “some confidence” that inflation is coming down, but is not ready to declare war on inflation.

“Bitcoin has been a good leading indicator for the Nasdaq-100 over the years,” Jonathan Krinsky, chief market technician at BTIG, wrote in a note ahead of the S&P 500, Nasdaq and Dow rally this week.

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For now, the momentum is on the side of stocks, as traders continue to bet on interest rate cuts from the Federal Reserve.

“Growing confidence in U.S. rate cuts has kept the mood upbeat and broad-based gains going,” Dan Coatsworth, investment analyst at brokerage AJ Bell, said in emailed comments.