🐂 Bull or 🐻 Bear for Stocks, Crypto, and Real Estate?

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Here’s How The Market Has Been Performing*

*As of Close of Current Market Week

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Investor News Of The Week

Company A just beat Q1 EPS by 8.10%; they beat Q1 Revenue by .64%. In other words, they had surprises to the upside relative to expectations for both of these key metrics. Even better - Company A had Q1 Revenue that was up 27% year-over-year and Q1 Profit that more than doubled year-over-year.

In response to these outstanding results; investors went on a selling spree - causing this company’s stock to drop as much as 19% in extended trading last Wednesday.

So, what gives?

It is important to remember that stock prices can be volatile because they are based on the combination of current results AND future results. Negative global events can drop prices because the assumption is that future results may be impacted. Internally, corporate strategy or growth trends that are perceived negatively by investors - can create the SAME downward pressure on a company’s share price.

In this case, Company A is Meta. At first glance, the Q1 results were great; however, the Q2 guidance and long-term trajectory were a little shaky. Meta forecasted higher than anticipated capital expenditures (between $35 Billion to $40 Billion versus $30 Billion to $37 Million) - and after their “Year of Efficiency” helped Meta’s stock price to almost triple in 2023 and head into earnings up 40% in 2024, perhaps it was natural for some investors to take profits as they wait to see if Meta getting away from that with a renewed focus on investing into AI and the metaverse will payoff; both of these initiatives are resource-hungry (currently responsible for billions in losses so far).

Still, Meta CEO Mark Zuckerberg was undaunted by any short-term stock price declines; noting:

By the close of the market week, Meta’s stock price had shown signs of stabilizing, ending green on Friday (and recovering from the recent sell-off) to end the week down -9.47%. Perhaps after digesting the future guidance, remaining investors have become more comfortable taking a “wait and see” approach to Meta’s execution on these programs.

Either way, when it comes to stock investing, this is why it is always important to keep an eye on past performance AND future guidance, along with how macro conditions (and a company’s economic moat) can impact results down the line.

Unbroken Insights

Three of the most popular markets for investors are stocks, crypto, and the real estate market(s). There are a lot of theories about what will happen next with each of them, so I wanted to share my thoughts based on a LOT of research on each of these topics (seriously… we spend 2-3 hours every day monitoring these).

I feel like a weatherman standing in the rain predicting it will rain, but… based on these two key details, it is only a matter of time until it is going to go up. With that said, the reason is simple.

First, last week we mentioned that the 4th Bitcoin halving had occurred. Historically, the previous three times where this happened resulted in a short-term drop in the price of Bitcoin, followed by an eventual, new all-time-high. Compared to the last halving in 2020, Bitcoin is only more mainstream and popular than ever.

In other words, (and second) this is about supply and demand. With the recent release of Bitcoin ETFs, there have been billions of dollars (literally over $10 billion in less than 2 months) flowing into those ETFs.

With the new halving, now that Bitcoin is creating less supply of new Bitcoin, the continued demand for Bitcoin will force prices higher. Simple economics: as demand for Bitcoin rises a lot and the supply only rises a little, price MUST go up due to the heightened demand relative to supply. Recently, both Hong Kong and the UK approved funds similar to ETFs that will spur even more demand for Bitcoin.

Add in the fact that there are several Ethereum based ETFs coming out soon…and it is likely that we will see a similar rise in Ethereum. As Bitcoin and Ethereum increase, the demand for many other alt coins have often started trending and increasing with them.

The only thing that can stop this crypto bull market is major regulation. A few months ago, one court ruled that crypto is not a security. Last month, a different court in the US ruled that it IS a security. Odds are high that this may eventually go to the Supreme Court, (to eliminate the conflicts between various policies).

A ruling that most or all crypto is a security is the only thing on the horizon (that I see) that could cause a slowdown in the crypto bull market.

There are two “battling” forces here. On the side of the bull market, you have AI companies and the enthusiasm for how much money they will make in the future driving stock prices up. Virtually any company that says it will use AI in some manner sees at least a temporary jump in stock price.

On the side of the bear market, there are two major factors. First is the fact that savings are at an all-time low, credit card debt is at an all-time high, 401k hardship withdrawals are at an all-time high, and both foreclosures and bankruptcies are climbing steadily. Many people have run out of money, run out of credit, and have no choice but to greatly reduce spending. The other factor is the issue many smaller banks are running into because they made loans for office buildings and those loans are defaulting quickly. Just yesterday, another regional bank failure (Republic First Bank) occurred.

As soon as we start seeing bank failures or a downturn in the economy, the AI enthusiasm will snap back to reality and there will be a correction. That could happen within days or within a few months. I definitely see a bear market hitting stocks in the very near future. Keep in mind, I am not the “doom and gloom” type who is predicting a 50% or 80% market collapse. I just see the data that’s there and understand how market cycles work. It is time for the next correction - especially with the Federal funds rate likely to stay higher for longer due to sticky inflation (meaning that previously forecast rate cuts in the first half of the year are likely to be delayed). Lower rates tend to have an upward impact on stock prices; higher rates tend to have a downward impact on stock prices. Collectively, these macro conditions are primed to create a short-term pullback in the stock market.

I saved the hardest for last. Start with supply and demand. There simply are not enough houses available to meet the demand of a population that is growing (by births and immigration). Therefore, prices must go up until supply and demand are at an equilibrium. However, the combination of high housing prices and higher interest rates have made homes unaffordable to much of the US population. Therefore, prices must go down in order for homeowners to be able to buy houses. Demand is being restricted by the supply of affordable housing.

I told you this was going to be the hard one. I believe what we are seeing is a a major shift in how the US housing market works. Our transition from a homeowner society to a rental society has been accelerating. This has been happening for almost 20 years and the pull towards renting has increased almost every year. More and more houses are owned by landlords (both small investors and major Wall Street funds). This drives up prices by reducing the number of houses available for homeowners to buy. The higher housing prices make it more affordable to rent than to buy…and the cycle just feeds on itself to grow faster.

We are entering a time in which most people in their 20s and 30s are staying out of homeownership - needing to rent rather than buy. If trends continue, then in the very near future, most houses will be owned by corporations, Wall Street, or individual landlords. This will remain the case until rent prices drop enough that being a landlord is no longer profitable. That could take a while.

Considering all factors, I do not foresee any major corrections in the overall housing market. Nor do I see a huge jump in prices. Each housing market will seek to establish its own equilibrium (where prices are based on what is affordable in a given area). Some of the housing markets that skyrocketed in recent price history (Boise, Austin, Denver, etc.) are seeing an adjustment in home prices and rent because local wages can no longer sustain them. Most markets in the Midwest (like Indianapolis, Columbus, Cincinnati, Kansas City, etc.) that saw more moderate home price increases over the past few years are leveling off, but they are not seeing the declines that the more volatile markets are seeing - because homes are still far more affordable overall (local wages can sustain these prices).

Though the above is my assessment of where we are right now, that does not mean that our forecast will ultimately end up perfect or correct… as there is no way of telling what other macro factors (wars, weather, oil prices, etc.) could change things in an instant. The key to successfully navigating complicated market conditions is to take the time to research, and do due diligence to increase the probability (likelihood) that you’re on the right side of any investment by having a comprehensive strategy and plan.

One way that we do this is to make sure that we are always…DIVERSIFYING as much as possible so that even when there is a market pullback or rent price decline in one area, other assets are there to keep our overall portfolio growing.

Our approach to building bulletproof portfolios relies on this key principle. Each week we discuss the state of various investment markets with Unbroken Investing members on live calls. On Mondays, we discuss new opportunities. Log in or join to take part!

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