Stock market slump trickles into today’s Bitcoin and altcoin correction

What’s behind the correction in the US stock market and how might it continue to negatively impact cryptocurrencies?

• S&P 500 index experienced a 2.6% decline over the past two days
• Investor morale negatively affected
• Fear of rising inflation due to unsustainable government debt
• Rising jobless claims reported by US Department of Labor

Rising jobless claims and economic concerns

Fear of rising inflation due to unsustainable government debt might present a short-term negative impact but it also opens an opportunity as investors seek alternative scarce assets. However, if investors feel that the economy is worsening, especially in the job market, traders are likely to seek protection in cash and short-term government bonds.

On July 18, the US Department of Labor reported that continuing jobless claims increased to a seasonally adjusted 1.867 million during the week ending July 6, the highest level since November 2021.

Additionally, minutes from the June FOMC meeting revealed that credit quality deteriorated further in April and May, especially in the office, hotel, and retail sectors, with rising overdue delinquency rates. This scenario partially explains the weakness in the banking sector on July 18, with JP Morgan (JPM) trading down 3.2%, Wells Fargo (WFC) down 2.8%, and Bank of America (BAC) declining 2%.

Possible tech export restrictions impact on markets

Meanwhile, US-listed tech stocks were negatively impacted after Bloomberg reported that the US is analyzing rules to control the exports of American technology, a lynchpin to artificial intelligence. Although focused on curbing China’s edge in chipmaking processes, such a move would curb billions of dollars in sales for these companies. Shares of Advanced Micro Devices (AMD) traded down 3.1%, while ASML Holding (ASML) declined 2%.

Jim Covello, head of equity research at Goldman Sachs, issued a warning that the artificial intelligence (AI) investment frenzy may lead to an economic bubble, as reported by Bloomberg. Covello notes that AI investments have yielded modest returns, with Microsoft, Google, and Amazon attributing only 7% of cloud service sales growth to AI.

David Bahnsen, founder and chief investment officer at the Bahnsen Group, echoes this caution, avoiding large tech stocks, fearing a repeat of the dot-com bust, and anticipating significant investor losses if they don’t divest in time. Bloomberg cites a survey conducted by Lucidworks, which shows that less than half of the companies investing in AI have yet to see a significant return.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.