As geopolitical tensions escalate, particularly involving Iran and Saudi Arabia, veteran strategist Ed Yardeni has increased his assessment of the likelihood of a stock market crash this year to 35%. This marks a significant rise from his previous estimate of 20%, coinciding with oil prices surpassing $100 per barrel and the U.S. dollar experiencing its strongest weekly performance in a year.
On Monday morning, Bitcoin, the largest cryptocurrency, was trading at $67,378, reflecting a modest increase of 1.1% over the past 24 hours. Despite the surrounding market turmoil, Bitcoin has remained relatively stable, with its value largely unchanged over the week. Other major cryptocurrencies also saw slight gains; Ether rose 2.3% to $1,981, while BNB and Dogecoin increased by 1.4% and 1.8%, respectively. However, Solana experienced a decline over the week, down 1.5% despite a 1.8% rise on Monday.
In contrast, S&P 500 futures fell by over 2% during Asian trading. The VIX, a measure of market volatility, surged to its highest level since the tariff-related turmoil in April. The increase in oil prices has raised concerns about inflation and its potential impact on the U.S. economy, complicating the Federal Reserve’s dual mandate of promoting maximum employment and stable prices.
Yardeni noted, “The US economy and stock market are stuck between Iran and a hard place. If the oil shock persists, the Fed’s dual mandate would be stuck between the increasing risk of higher inflation and rising unemployment.” In periods of market meltdown, investors typically withdraw from high-risk assets, opting instead for cash, Treasuries, or the dollar. Historically, Bitcoin has not been immune to these dynamics, often declining alongside equities during significant market downturns.
Greg Cipolaro, head of research at NYDIG, provided insights into Bitcoin’s recent price behavior in relation to U.S. stocks. He emphasized that Bitcoin’s parallel movements with U.S. software stocks are indicative of shared exposure to the current macroeconomic environment rather than a fundamental convergence. Cipolaro stated that only about 25% of Bitcoin’s price fluctuations can be attributed to correlations with equities, with the remaining 75% influenced by external factors.
The overall equity landscape remains challenging. The MSCI global equity index fell by 3.7% last week, with Asia experiencing the most significant declines. South Korea, in particular, is still recovering from a record two-day drop. Hedge funds have increased their short positions in U.S. equity ETFs, reflecting a cautious outlook. In the bond market, benchmark 10-year Treasury yields rose by six basis points as traders adjusted their expectations for inflation in light of the oil price surge.
While the U.S. stock market has shown relative resilience, with the S&P 500 down only 2% last week, this stability may be waning, as indicated by the futures drop on Monday. The U.S.’s energy self-sufficiency provides a buffer compared to Asian and European markets, but the current trends suggest that this cushion may be diminishing.
Market volatility is on the rise as geopolitical tensions and surging oil prices contribute to a more pessimistic outlook for U.S. equities. Veteran strategist Ed Yardeni has raised the probability of a market crash, reflecting broader concerns about inflation and economic stability.