The Wall Street rally that took place in the first seven months of this year experienced a significant setback in August and September. This has left market participants highly concerned, especially as the Federal Reserve warned of another 25 basis point rate hike by the end of the year and expressed a desire for a longer period of higher interest rates. It is unlikely that the first rate cut will occur before September 2024, and the inflation rate is not expected to reach the central bank’s target of 2% before 2026.
These higher market interest rates have a negative impact on high-growth sectors such as technology, consumer discretionary, and cryptocurrency. Consequently, the crypto space is expected to face uncertainty in October. The prices of major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Dogecoin (DOGE), and BNB (BNB) are likely to remain volatile.
Near-Term Concerns
After the Federal Open Market Committee (FOMC) statement in September, Fed Chairman Jerome Powell’s remarks caused the yield on the 2-Year U.S. Treasury Note to reach 5.461%, its highest level since 2006. Similarly, the yield on the 10-Year U.S. Treasury Note reached 4.639%, its highest level since 2007. This surge in U.S. government bond yields has raised concerns among investors, who fear it could indicate an impending recession.
On September 27, crude oil prices reached their highest settlement level of the year. The global benchmark, Brent crude, increased by $0.16 and closed at $96.71, while the U.S. benchmark, Western Texas Intermediate crude, rose by $0.2 and closed at $93.88. Investors are particularly worried about the impact of rising oil prices on transportation costs and the overall price level.
Despite a gradual decline since June 2022, the inflation rate remains well above the Federal Reserve’s target of 2%. Higher crude oil prices only make the Fed’s job more challenging. Furthermore, on September 26, the ICE U.S. Dollar Index (DXY), which measures the currency against a basket of six others, rose by 0.4% to reach 106.71, its highest level since November 30, 2022.
According to the Conference Board, the consumer confidence index dropped to 103 in September from 108.7 in August. This is the second consecutive monthly decline and the largest drop since December 2020. The Expectations Index, which reflects consumers’ short-term outlook on income, business, and labor market conditions, fell to 73.7 in September from 83.3 in August and 88 in July. It’s worth noting that historically, any reading below 80 on the Expectations Index has signaled a recession within the next year.
Stocks in Focus
1. NVDA
NVDA is a prominent player in the semiconductor industry and has been one of the major success stories of 2023. As a leading designer of graphic processing units (GPUs), NVDA stock tends to soar when the crypto market is booming. This is because GPUs play a crucial role in data centers, artificial intelligence, and the creation of cryptocurrencies.
For the current year (ending January 2024), NVIDIA is expected to achieve an earnings growth rate of over 100%. The Zacks Consensus Estimate for its current-year earnings has improved by 2% over the past 30 days. NVDA currently holds a Zacks Rank #1 (Strong Buy). You can find the complete list of today’s Zacks #1 Rank stocks here.
2. Robinhood Markets Inc.
Robinhood Markets Inc. (HOOD) operates a financial services platform in the United States, allowing users to invest in various assets like stocks, exchange-traded funds, options, gold, and cryptocurrencies. Through its Robinhood Crypto platform, HOOD facilitates the buying and selling of cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin.
For the current year, Robinhood Markets is expected to achieve an earnings growth rate of 57.3%. The Zacks Consensus Estimate for its current-year earnings has improved by 18% over the past 60 days. HOOD currently holds a Zacks Rank #2 (Buy).
3. Interactive Brokers Group Inc.
Interactive Brokers Group Inc. (IBKR) is a global automated electronic broker that executes, processes, and trades in cryptocurrencies. It also offers customers the opportunity to trade cryptocurrency futures through its commodities futures trading desk.
For the current year, Interactive Brokers Group is expected to achieve an earnings growth rate of 38.8%. The Zacks Consensus Estimate for its current-year earnings has improved by 0.7% over the past 60 days. IBKR currently holds a Zacks Rank #2.
4. Coinbase Global Inc.
Coinbase Global Inc. (COIN) provides financial infrastructure and technology for the cryptocurrency economy globally. COIN offers a primary financial account for consumers in the crypto space, a marketplace with liquidity for institutional transactions in crypto assets, and technology and services for developers to build crypto-based applications and accept crypto assets as payment securely.
For the current year, Coinbase Global is expected to achieve an earnings growth rate of 84.8%. The Zacks Consensus Estimate for its current-year earnings has improved by 30% over the past 60 days. COIN currently holds a Zacks Rank #3 (Hold).
5. Block Inc.
Block Inc. (SQ) is an online digital and mobile payment platform that includes Square and Cash App. Users of Cash App can buy, sell, send, and receive Bitcoin. Additionally, SQ’s decentralized platform enables developers to create decentralized finance applications on programmable blockchains. SQ is also one of the largest investors in Bitcoin.
For the current year, Block is expected to achieve an earnings growth rate of 69%. The Zacks Consensus Estimate for its current-year earnings has improved by 0.6% over the past 30 days. SQ currently holds a Zacks Rank #3.