The sky is about to fall today as markets are tanking following the US Federal Reserve’s decision not to cut rates, a moribund jobs report in the US, and Warren Buffet dumping half of his position in Apple (the largest holding in his portfolio), driving concern that the US is in store for a hard landing.
Market guru Jeremy Siegel is calling on the Fed to cut rates now, recommending a whopping 75 bps reduction, criticizing the Fed for not knowing anything about the economy.
Bitcoin, sometimes viewed as a safe harbour in a scary world of volatility is cratering. The world’s most popular crypto is down a significant 26% for the week – with 16% in the past 24 hours. Currently, BTC is trading at just over $50,0000 when at the end of July it was trading near $70,000.
Value Destruction
Ruslan Lienkha, chief of markets at YouHodler, believes the Fed will struggle to achieve a soft landing. On top of this you have rising geopololitcal concern and a deflating AI bubble. This all leads to investors slamming the risk off button, selling positions.
“In the crypto market, the situation was exacerbated by weekend trading, a period of low liquidity when institutions are typically inactive, and fiat fund transfers face difficulties. Consequently, the market experienced a wave of margin calls on long positions. Following such a significant drop, we might see a corrective rebound in Bitcoin’s price. However, this increase will likely be limited due to the prevailing pessimism in the broader markets.”
Lienkha believes that Bitcoin’s decline is more due to external factors than anything else but hesitates to call a rebound, alluding to the possibility of a bear market.
Daniela Sabin Hathorn, senior market analyst at Capital.com, says the market meltdown is due to the perception the Fed missed the mark. The rise in the Japanese yen following a rate increase had fueled the sale of securities in Japan.
“The Bank of Japan hiking rates last week has caused some of the carry trade to unwind, hurting stocks. Many traders who were borrowing Yen (JPY) at low interest rates, converted them to USD and used this to buy US stocks. But now, with higher rates in Japan, not only must they pay higher interest for the yen they borrowed, they are now facing forex losses as well.”
Hathorn adds that traders will likely pay close attention to the ISM data, a measure of US manufacturing activity while looking for any further signs of weakening, which could weigh further on the dollar and the stock market.
Global markets, in general, will experience heightened volatility for some time. The US Presidential elections are a toss-up, with one candidate supporting big government and higher taxes and the other supporting whatever is top of mind. China is pounding the war drums in Southeast Asia, and Vladimir Putin holds delusional visions of a re-animated Soviet empire. All the above creates a volatile cocktail of the unknown.
As for the Fed, they could reverse last week’s decision and slash rates in an attempt to kick start the sagging jobs market. Or they could wait until the next meeting in September. Whatever their decision, rate cuts are on the way.
