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CYCLICAL STOCKS, DEFENSIVE STOCKS AND BITCOIN

We are all very used to hearing “the Spanish stock market has risen 0.5%”. That "0.5%" means that, on average, the values that make up the IBEX 35 (the reference index of the Spanish stock market) have risen by 0.5%. It must also be specified that this average is weighted, that is, if Inditex has a value on the stock market that doubles that of Banco Bilbao Vizcaya, a rise in Inditex will “weight” twice as much as the same rise in BBVA.


Of the 35 values that make up the IBEX 35, it is rare for two to have the same rise (or fall) on the same day. This fact (that not all stocks move in the same way on any given day) has many explanations. The simplest is that if two companies report results on the same day, and one is good and the other is bad, the good one will go up, and the bad one will go down. But there is another, somewhat more complex explanation. The stock market (and the securities listed on it) see their price affected by expectations. By expectations we understand how the price of the security will evolve in the future. For example, NVIDIA has seen its price skyrocket because it makes vital components for computers that use artificial intelligence programs. Specifically, the share price has doubled. On the other hand, during the confinement, the price of the oil companies fell sharply: the reason was, obviously, the drop in fuel consumption.


When an economic crisis hits, the stock market inevitably behaves badly. However, there are certain stocks that suffer less than others. The securities less affected by crises are called defensive. For example, shares of supermarkets, of basic supply energies (electricity, water, etc...). Instead, those most affected are called cyclical: for example, oil. The difference between the two is simple: the defensive ones group economic activities that are more difficult to do without, while the cyclical ones group more expendable economic activities in case of need.


And how does bitcoin react to an economic crisis? There are not many precedents in this regard, but we can already point out a very important general guideline: as a general rule, when the stock markets suffer, bitcoin suffers much more; and, when the stock markets are doing well, bitcoin skyrockets.


No two crises – or two booms, or two bubbles – behave exactly the same. But it does not seem that the aforementioned general pattern is going to change. It is impossible to know when the stock markets will “bottom out”, but it is clear that when they do, the lucky ones who buy bitcoin are expected to have large profits in the coming years.



Holders & Brothers team.

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