A Cryptocurrency Primer In recent years, a hot -- and at times controversial -- topic in the financial community has been cryptocurrency supported by blockchain technology. Cryptocurrencies first emerged in 2009 as a new technology, and offer some potential advantages to traditional currencies while creating new trading opportunities. Still, there are major risks as well. Blockchain and Mining Cryptocurrencies are supported by a technology known as blockchain, which is a tamper-resistant leger of transactions that outlines the ever-changing ownership of the underlying currency. Cryptocurrency is able to eliminate the middlemen in transactions through the blockchain as it records each transaction and stores the information in blocks. Blockchain technology is what has made cryptocurrency viable as it prevents individuals from making copies of their holdings and using them for multiple transactions, an issue that has prevented previous attempts at creating a digital currency. Many cryptocurrencies, such as Bitcoin, are created through a complex and energy-intensive process known as 'mining.' Mining involves a process of validating and updating transactions to the digital ledger, or blockchain. Crypto mining prevents the double use of coins as it is both remarkably expensive and inefficient to submit false transactions to the ledger, while being remarkably easy for other parties to verify the correct transactions. The crypto miners reward for correctly solving the complex algorithms required to upload transactions are new coins that get generated after solving the algorithm. Given this process, a malicious actor would need to control more than 50% of the entire mining network in order to record false transactions successfully, while overcoming extremely high physical hardware and energy demands. There are over 2 million cryptocurrencies in circulation, ranging from micro-cap to mega-cap, with some rising to valuations worth hundreds of billions of dollars. Crypto Pros Crypto offers several advantages as an alternative investment, which gives it certain unique benefits that traditional currencies do not offer. Inflation protection is one such advantage for many cryptocurrencies, with Bitcoin (as an example) having a hard cap of only 21 million coins that will ever reach circulation. With nearly 19.8 million coins currently in circulation, Bitcoin is programmed to halve the pace of its mining rewards every four years, making it a more-attractive investment in times of high inflation. The price of Bitcoin historically has risen following each halving cycle, this as prices must keep up with the high energy costs required to maintain the ledger and in order for it to remain worthwhile for miners (as the rewards become increasingly smaller). Crypto transaction speeds also offer an advantage over traditional currencies. Indeed, transferring a cryptocurrency can be accomplished within minutes rather than the several days needed by most U.S. financial institutions to process a transaction. As well, given the elimination of third-party vendors to validate transactions, transactions costs can be significantly lower than is the case with traditional methods of sending currencies, particularly when transferred overseas or as a large value transfer. Volatility has become associated with crypto given the swings in the price of Bitcoin, Ethereum, and other cryptocurrencies, with prices often rising and falling more than 50% over the span of just a few months. While this volatility has made crypto a popular short-term trading asset for traders looking to make significant gains amid the large swings in pricing, other investors have held firm, utilizing what has become known as a 'HODL' mentality as they 'Hold On for Dear Life.' Crypto Cons Despite the potential upside of investing in cryptocurrencies, there are also serious risks. User risk is one of the major issues seen with crypto, as entire balances can become lost if an investor losses a password or pass phrase associated with an account. This issue has reached such a high level that some early investors have been known to purchase waste dumps where they knew hard drives containing valuable holdings had been erroneously discarded. It is estimated that one-fifth of all Bitcoins are permanently lost due to the loss of passwords. As well, there is no way to rescind a transaction after it has been recorded. The manipulation of crypto markets also remains a large risk with cryptocurrencies, as there have been several instances of unethical practices. This is a particular issue as regulation remains a looming question in the crypto community, with plenty of grey areas surrounding crypto legislation in the U.S. and sudden shifts in regulation that dramatically impacted the way that crypto is bought and sold. Given the limited regulation, some large account holders, known as whales, have engaged in pump-and-dump schemes that have artificially caused the price of certain cryptocurrencies to skyrocket or plunge. Liquidity can also be an issue in crypto, especially with lesser-known coins that hold limited demand. While liquidity has improved over the past few years across the crypto market, particularly for the largest coins such as Bitcoin and Ethereum, it remains an important factor to be considered. The Future for Crypto Looking at crypto as a currency alternative is an interesting exercise as the issue is relatively complicated. Bitcoin, for example, has largely been described as a 'digital gold,' offering its best use-case as a means to settle transactions. Rival Ethereum is largely considered closer to a 'digital oil,' serving to power an ecosystem of digital contracts. There are many different types of crypto currencies across the market. Besides Bitcoin, stablecoins could make a convincing case for serving in the place of traditional currency. Stablecoins are cryptocurrencies that are backed by another asset, such as a currency, commodity, or financial instrument. Stablecoins are not as volatile as non-backed cryptocurrencies and have increased traction across various markets. European fund giant DWS has announced plans to launch the first euro-backed stablecoin in 2025, which we think demonstrates the potential of these coins. Still, stablecoin issuer Paxos was under SEC investigation for their USD-backed stablecoin due to speculation about possible violations of securities laws. The SEC decided it will not be continuing action in the case, but the event does highlight the issue of stability for the asset. Blockchain technology may also see an increase in its number of use cases. As the world becomes increasingly data-driven, blockchain may be able to help with data and information management. Healthcare is thought to be an industry that could benefit from blockchain technology, with opportunities surrounding the security of patient data, transparency and traceability in the supply chain, and a reduction in the risk of data breaches. Blockchain may also find use in the financial industry as it has the potential to streamline banking and lending services, reduce counterparty risk, and decrease issuance and settlement times. While classifying crypto as an alternative asset class offers the potential for major upside, there remains uncertainty. One of the biggest concerns is regulation. In many countries, crypto is already becoming increasingly regulated -- but in the U.S., lawmakers have been slow to respond, forcing companies to rely on legal battles as they fight to establish greater clarity in the market. Furthermore, many states have adopted their own laws on cryptocurrencies, creating barriers for some would-be market participants. Conclusion Despite these risks, there remains optimism over the growth of cryptocurrencies, and that has fueled a significant rise in the price of Bitcoin and Ethereum over the past 12 months. Global conflicts and geopolitical tensions have led some to believe that cryptocurrencies offer a potential hedge against instability in currency fluctuations and financial markets. Amid the rapid rise in inflation in Venezuela and Argentina, El Salvador has adopted Bitcoin as an official legal tender. Additionally, former U.S. president and current presidential candidate Donald Trump has suggested that the U.S. should establish a Bitcoin strategic reserve. Within the financial world, BlackRock CEO and co-founder Larry Fink has described Bitcoin as 'digital gold,' offering some legitimacy to it being used as a hedge against currency fluctuations. According to Mr. Fink, 'It is a legitimate financial instrument that allows you to have maybe uncorrelated, non-correlated returns.' BlackRock has launched a Bitcoin ETF, which saw $4 billion in net inflows in the second quarter, and, more recently, an Ethereum ETF. Crypto seems to be gaining traction within the investment community and seems to hold promise in regards to growth. Despite recent excitement around crypto, there are still some factors that can be cause for concern -- such as a lack of regulation, a lack of fundamentals for valuation, and other potential pitfalls. Yet even with these concerns, the future of crypto still appears to be bright as the asset appears to be gaining increasing traction.

The minor change in character in the stock market lasted three to five days, depending on how it is measured. After three down days, that was enough for the 'king of the hill' and investors swooped in and catapulted Nvidia (NVDA) to a 6.7% pop on June 25. The stock is now just 7% from its recent all-time closing high. While other semiconductor stocks rose as well, their gains were muted -- with most of the heavyweights gaining 2%-3%. ARM Holdings Plc (ARM) was the exception, reclaiming 6.4%. So was that it for the great semiconductor decline in 2024? Bullishly, most of the big stocks held initial support from their 21-day exponential averages. In addition, the semis quickly worked off extreme momentum divergences on a daily basis. But many remain overbought on a weekly basis and have traced out weekly bearish divergences, with some quite glaring. From a technical basis, we would prefer (and lean toward) more sideways-to-down price action in the coming weeks before the next leg higher. Seasonally, the summer-to-fall period has been the worst for semiconductors and technology in general. As for the areas of the market that benefited recently, June 25 was not a pretty day. The S&P MidCap 400 declined 1% while the S&P SmallCap 600 fell 0.9%. Looking at sectors, Real Estate (XLRE), Materials (XLB), and Utilities (XLU) all dropped at least 1%, with Financials (XLF) and Industrials (XLI) giving back 0.8%. NYSE breadth was -1,000 while advancing issues/total issues and up volume/total volume was fairly weak at only 33%.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from global events. As well, the prices of SMID stocks generally are lower than the prices of large-caps. As well, there are long stretches in the record books when SMID stocks have outperformed large-caps. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over a 2003-2021 test period, versus 4.3% for large-caps. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.

Weekly Tee Up: Walmart and Nvidia

As 2023 comes to a close, we are reminded of John Bogle, the founder of The Vanguard Group, who was credited with popularizing the index fund. A man of many quotes and the author of a number of books, Bogle offered the following. "Intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won't be foolish enough to think they can consistently outsmart the market."

Stocks fell on Monday morning as investors reassessed prospects for Fed rate cuts in 2024 and awaited the November employment report on Friday. On the M&A front, Hawaiian Holdings, the parent company of Hawaiian Airlines, soared on news of a buyout offer from Alaska Air Group. The Alaska offer of $18 per share represented a 270% premium to the HA closing price on Friday. Elsewhere, Spotify shares rose more than 8% after the music streaming service announced a new round of layoffs, while Uber rose nearly 5% after being added to the S&P 500 index. The Dow fell 0.4%, the S&P 0.7%, and the Nasdaq 1.1%. Crude oil fell nearly 1% to $73 per barrel while gold traded near $2043 per ounce.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

As of the close on Friday, August 18, the major indices had fallen in three consecutive weeks for the first time since December 2022, when they all fell four weeks in a row. The Nasdaq fell to its key 21-week exponential average (EMA) on that Friday and bounced, while the S&P 500 was within 10 points of its 21-week EMA before bouncing. The Nasdaq 100 (QQQ) got within four points of the average and popped. Rebounds on Friday did nothing to erase the short-term downtrends, as the 10- and 21-day EMAs for the indices are above declining price and the indices all undercut their 50-day.

Stocks rose on Thursday following new retail sales and weekly employment data. The rally came despite signs from the Fed that it would raise interest rates two more times this year after its pause on Wednesday. The Commerce Department reported that retail sales rose a better-than-expected 0.3% in May, helped by strong sales of automobiles, building materials, and garden equipment. On the employment front, first-time claims for state unemployment benefits were unchanged at a seasonally adjusted 262,000 for the week ended June 10, above the consensus forecast of 249,000. Continuing claims rose by 20,000 to 1.775 million. The Dow rose 1.26%, the S&P 1.22%, and the Nasdaq 1.15%. Crude oil rose more than 3% to $70.50 per barrel, while gold traded near $1970 per ounce.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $15 billion to define a SMID stock.

Monday Tee Up: Barrage of Retail Earnings

Stocks slumped throughout 2022, as the S&P 500 entered a bear market in June and closed 19% lower for the year. Value stocks generally outperformed during the year, as the Dow Jones Industrial Average fell 9% while the Nasdaq Composite dropped 33%. The leading sectors were value-oriented, such as Energy, Utilities, Consumer Staples, and Financial Services. The average stock in the Argus Universe of Coverage declined 13% during the year, and the median stock declined 15%. The average BUY-rated stock dropped 11%, while the average HOLD-rated stock fell 17%. Will investors continue to favor value in 2023? Will high inflation drive continued outperformance in Energy?

Stocks rose on Tuesday morning amid more comments on rate hikes from Fed officials and earnings reports from major retailers. Best Buy shares rose 10% after the company posted above-consensus 3Q revenue and EPS, and raised its full-year sales outlook. Dollar Tree shares fell 10%, despite solid 3Q results, as the discount retailer said that 2022 earnings would come in toward the low end of its guidance range. The Dow rose 0.8%, the S&P 0.6%, and the Nasdaq 0.1%. Crude oil rose 2% to $81.50 per barrel, while gold traded near $1745 per ounce.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky -- and large-caps outperformed SMID stocks in 11 of the 19 years in our test period. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Stocks fell sharply on Friday morning after Fed Chair Jerome Powell said that the central bank would continue to raise interest rates, and keep them elevated, to prevent inflation from becoming entrenched. He also acknowledged that rate hikes would come at a cost to the American economy. Mr. Powell's speech overshadowed positive inflation data. The Commerce Department said that personal consumption expenditures fell 0.1% month-over-month in July, down from 1.0% growth in June. The core PCE, excluding food and energy, rose 0.1%, slowing from 0.6% a month earlier. The Dow fell 1.7%, the S&P 2.0%, and the Nasdaq 2.7%. Crude oil fell slightly to $92 per barrel, while gold dropped $23 to $1749 per ounce.

Stocks have struggled in 2022, but corporate insiders have reacted with increasing optimism in recent weeks as stocks have plumbed new lows. Indeed, given the strength of current insider-sentiment readings from Vickers Stock Research, it seems clear that insiders are viewing the current dip as an opportunity.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine. As well, the prices of SMID stocks generally are lower than the prices of large-caps. That said, SMID stocks can be risky and large-caps outperformed SMID stocks in 11 of the 19 years in our test period. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine. For another, the prices of SMID stocks generally are lower than the prices of large-caps, as the P/E ratio on the Russell 2000 Small-Cap Index is 16x compared to a P/E of 27x for the S&P 500. Finally, the long-term record has favored SMID stocks over large-caps. From 2003-2021, the Russell 2000 Index had climbed 544%, compared to an advance of 401% for the S&P 500 index. Here are a handful stocks with market caps below $20 billion that are on the Argus BUY list.

Current Correction Similar to Past Near-Bear Phases, not Classic Bear Markets

Back with a Vengeance: Our Monthly Survey of the Economy, Interest Rates, and Markets

Back with a Vengeance: Our Monthly Survey of the Economy, Interest Rates, and Markets

Last week, stocks closed with a fresh set of all-time highs. Argus Director of Research Jim Kelleher, CFA, noted that 'saying 'all-time highs' has started to sound like a broken record.' Jim went on to detail why the relentless push higher is not necessarily a good thing. That disconnect matches current insider-trading data.

The April nonfarm payrolls report badly missed consensus expectations and signaled that the economic recovery is far from automatic, or even assured. Stocks rose, suggesting that the fundamental event of a major data report can have far-reaching technical impact in the market.

We have highlighted (repeatedly) the current strong market breadth, even suggesting it might be too strong and in need of a reset. We've also talked about extremely overheated market sentiment, also in need of a nice reset as we see it.

The first day of trading in December reversed some of the selling on November's last day, returning major indices to levels at or near all-time highs. When indices are making new highs, it stands to reason that many stocks are also at or near all-time-high levels. Yet that's not an ironclad guarantee.

While COVID-19 numbers are reaching dangerous levels, there are reasons to believe the economy is better braced against major lockdowns. The healthcare infrastructure is better prepared for what likely will be even higher infection levels post-Thanksgiving. And with vaccines seemingly close to early production, any targeted restrictions are unlikely to trigger as much doom and foreboding as they did in March.

Volume is now returning to the weekly data from Vickers Stock Research. After a lull during earnings season, when corporate executives, directors and beneficial owners were broadly prohibited from trading, the volume of insider transactions has started to move higher again. This week, some 1423 transactions met the criteria for inclusion in the Weekly Insider Report. That compares to a weekly average of 728 transactions for the last six weeks. As such, the signals thrown off by insiders are now more meaningful. So, what are those signals?

Volume is now returning to the weekly data from Vickers Stock Research. After a lull during earnings season, when corporate executives, directors and beneficial owners were broadly prohibited from trading, the volume of insider transactions has started to move higher again. This week, some 1423 transactions met the criteria for inclusion in the Weekly Insider Report. That compares to a weekly average of 728 transactions for the last six weeks. As such, the signals thrown off by insiders are now more meaningful. So, what are those signals?