The Federal Reserve’s recent decision to initiate a rate cut has generated enthusiasm in the markets, yet it doesn’t necessarily indicate an upsurge in risk assets. Historical data reveals that while such policy shifts may ignite initial sales, they often fail to sustain long-term market buoyancy. Investors are currently navigating the complexities in stocks, cryptocurrencies, oil, gold, and other assets. What hurdles are they encountering?
Current Market Conditions
In its latest review, Fitch highlighted that the Fed’s rate cut cycle is expected to be gradual and modest, contrasting with market anticipations of a 100bp cut by year-end. This discrepancy has led to a downward adjustment in market expectations, potentially triggering further declines in risk markets. Additionally, Fitch maintained its projections for oil and natural gas prices.
Stocks are grappling with continued losses despite only a single day of gains this month. Oil prices remain weak, suggesting a lack of demand, while bond prices are rising, hinting at recession preparations. Gold prices may also continue to experience volatility. Notably, US mortgage demand has plummeted to a 30-year low.
The US is currently experiencing the second-largest wave of bankruptcies in 14 years, with 452 large companies declaring bankruptcy up until August 2024. This figure is just shy of the 466 major bankruptcies recorded during the 2020 quarantine period. August alone saw 63 firms going bankrupt, making it one of the worst months in recent years.
Current Status of Cryptocurrencies
Meanwhile, the cryptocurrency market is facing a different scenario. The recession’s impact on stock markets extends to cryptocurrencies, leading to declines as economic stagnation reduces disposable income for speculative investments. The long-term drop in risk appetite and BTC‘s struggles at new peaks underscore concerns about the global economy affecting this sector. Furthermore, economists predict the Fed will implement a total rate cut of 75bp this year, with sharp cuts of 50bp or more deemed unlikely.
Sector-Specific Insights
– Consumer sector witnessed 69 bankruptcies.
– Industrial sector faced 53 bankruptcies.
– Healthcare sector saw 45 bankruptcies.
These numbers suggest that economic slowdown and recession fears are valid, particularly affecting these sectors.
The total trading volume on cryptocurrency exchanges stands at $63 billion, despite BTC’s price reaching $57,000. This is atypical for bull markets, indicating that the crypto market may need to brace for the recession’s impact more seriously.