Digital currency, precious metals and stock markets continued to fall Monday after markets tumbled last Tuesday. Last week’s fall was one of the worst weeks in more than three months as market strategists believe a sizeable Fed rate hike is imminent this week. Bank of America analysts, led by Savita Subramanian, believe the Federal Reserve “has more work to do” and an aggressive central bank could be “an anathema to stocks that have benefited from low interest rates and disinflation.”
Crypto, precious metals, stocks show volatility ahead of Fed rate hike – Pseudonymous analyst Plan B says Bitcoin and the S&P 500 are correlated but ‘entirely different worlds’
A tightening Fed could be like a repellant or kryptonite for assets benefiting from looser monetary policy and stimulus, Bank of America market strategists led by Savita Subramanian said in a statement last weekend. Global assets got off to a rocky start on Monday as all four of Wall Street’s major stock indices started the day (9:30 am) lower after a brutal week of trading activity last week. At 3:00 p.m. ET, benchmark stocks staged a modest recovery that showed extreme market volatility and uncertainty.
Subramanian and his team predict the S&P 500 will lose another 8% this year, and he went on to emphasize that the “summer rally is over.” On Monday, digital currency markets are down 1.61% in the last 24 hours and the crypto economy is now just above the $900 billion mark at $933.17 billion. Bitcoin (BTC) is down 1.67% against the US Dollar and Ethereum (ETH) is down 1.79% over the past 24 hours.
Precious metals such as gold and silver were also down on Monday as gold fell 0.12% and silver fell 0.74% against the greenback. Bitcoin markets are highly correlated with US stocks, but some BTC market analysts believe Bitcoin is a different animal altogether.
“[Bitcoin] and S&P 500 correlate,” according to pseudonymous analyst Plan B tweeted on Monday. “During the same period that S&P went from ~$1k to ~$4k, [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 has more work to do” – Greenback bounces higher, 10-year Treasury bills hit 11-year high
Meanwhile, economists and analysts suspect the US Federal Reserve will hike interest rates by 75 basis points this week. Bank of America’s Subramanian argued that “the Fed has more work to do,” and the lessons of more than four decades ago can tell us much about fighting inflation.
“A hawkish Fed may be anathema to stocks that have benefited from low interest rates and disinflation (ie, most of the S&P 500), but the lessons of the ’70s tell us that premature easing could lead to a new wave of inflation — and there may be a lower price to pay at this level of market volatility in the short term,” explains the Bank of America strategist. Subramanian’s opinion follows the Bank of America economists’ report released in mid-July.
If the Fed isn’t careful, something will break. pic.twitter.com/inTtO7CZaP
— Sven Henrich (@NorthmanTrader) 09/16/2022
At the time, the bank’s economists said they had previously expected a “growth recession,” but the summer forecast pointed to a “moderate recession in the US economy this year.” On Monday, market analyst Sven Henrich quoted Fed Chair Jerome Powell’s statement during a news conference last June, when Powell said, “Today’s 75 basis point (bps) rise is clearly unusually large and I don’t expect moves of that magnitude to be common.” Henrich then scoffed the Fed chair by noting that the central bank is proceeding to deliver the third consecutive 75 basis point rate hike.
While almost every asset class under the sun has a strong connection to inflationary pressures and Fed monetary policy, the US dollar has continued to surge against other fiat currencies. The US dollar currency index (DYX) rose to 109.756 on Monday afternoon (ET) and the euro has again reached parity with the greenback. A single Japanese yen is equivalent to $0.0070 per yen, and 10-year US Treasuries hit an 11-year high of 3.518% on Sept. 19.
What do you think of Bank of America’s market strategist’s take on an aggressive Fed and another 8% loss for the S&P 500 by year-end? Let us know what you think about this topic in the comment section below.
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