Markets in digital currencies, precious metals and equities fell another leg on Monday after the markets fell last Tuesday. Last week’s drop was one of the worst weeks in more than three months, as market strategists believe a major Fed rate hike is coming this week. Bank of America analysts, led by Savita Subramanian, say the U.S. Federal Reserve “still has work to do” and an aggressive central bank could be “anathema to stocks that have benefited from low rates and disinflation.” “.
Crypto, Precious Metals and Stocks Show Volatility Ahead of Fed Rate Hike
A hawkish Fed can be like repellent or kryptonite for assets that have benefited from easier monetary policy and stimulus, Bank of America market strategists led by Savita Subramanian said in a note over the weekend. end last. Global assets are off to a rocky start on Monday, with Wall Street’s four major stock indices starting the day (9:30 a.m.) down after a horrific week of trading activity last week. As of 3:00 p.m. (ET), the benchmark shares saw a slight rebound, indicative of extreme market volatility and uncertainty.
Subramanian and his team predict that the S&P 500 will lose another 8% this year, and he further stressed that the “summer rally is over.” On Monday, digital currency markets fell 1.61% in the past 24 hours, and the crypto economy is now just above the $900 billion mark at $933.17 billion. Bitcoin (BTC) lost 1.67% and Ethereum (ETH) lost 1.79% against the US dollar in the past 24 hours.
Precious metals like gold and silver also suffered losses on Monday, with gold shedding 0.12% and silver falling 0.74% against the greenback. Bitcoin markets have been extremely correlated with US equities, but some BTC market analysts think bitcoin is a very different animal.
“[Bitcoin] and S&P 500 are correlated,” the pseudonymous Plan B analyst tweeted In Monday. “However, over the same period that S&P went from ~$1,000 to ~$4,000, [bitcoin] went from ~$10 to ~$20,000. 4x versus 2000x…completely different worlds. Short term moves are noise, long term trends are the signal.
Bank of America market strategists: “The Fed still has work to do”
Meanwhile, economists and analysts suspect that the US Federal Reserve will raise the target federal funds rate by 75 basis points this week. Bank of America’s Subramanian detailed that “the Fed still has work to do” and lessons from more than four decades ago can tell us a lot about fighting inflation.
“A hawkish Fed may be anathema to stocks that have benefited from low rates and disinflation (i.e. most of the S&P 500), but lessons from the 1970s tell us that premature easing could lead to a new wave of inflation – and that short-term market volatility may be a lesser price to pay,” says the Bank of America strategist’s note. Subramanian’s opinion follows the report that Bank of America economists America revealed in mid-July.
If the Fed is not careful, something will break. pic.twitter.com/inTtO7CZaP
—Sven Henrich (@NorthmanTrader) September 16, 2022
At the time, the bank’s economists said it previously expected a “recession in growth”, but the summer forecast suggested a “mild recession in the US economy this year”. On Monday, market analyst Sven Henrich cited Statement by Fed Chairman Jerome Powell at a press conference last June, when Powell said: “Obviously today’s 75 basis point (bps) increase is unusually large , and I don’t expect moves of this magnitude to be common.” Henrich then mocked the Fed Chairman by noting that the central bank was proceeding with the execution of the third consecutive 75 basis point rate hike.
While almost every asset class under the sun shows a strong link to inflationary pressures and Fed monetary policy, the US dollar has continued to soar against other fiat currencies. The US Dollar Currency Index (DYX) hit 109.756 on Monday afternoon (ET) and the Euro hit parity with the greenback again. A single Japanese yen is equivalent to $0.0070 per yen, and US 10-year Treasuries hit an 11-year high of 3.518% on September 19.
What do you think of the Bank of America market strategist’s view on an aggressive Fed and the S&P 500 losing another 8% by the end of the year? Let us know what you think about this topic in the comments section below.
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