US Stocks Hit All-Time Highs: What's Next for Crypto Investors and Future Rate Cuts?
Digital Asset Market: Majors, including BTC and ETH, experienced significant declines in Asian trading hours on Tuesday due to profit-taking and outflows from U.S.-listed Bitcoin ETFs. Dogecoin and Solana saw the largest losses, while BNB outperformed. The CoinDesk 20 also fell by 4.2%. Last week, BTC dipped below $65,000 due to ETF outflows and the Fed signaling only one interest rate cut in 2024. The decision by French President Emmanuel Macron to call a snap election has strengthened the dollar, putting downward pressure on BTC. Optimistic expectations for an Ether ETF did not boost prices, and the increased weekday liquidity may benefit bears over bulls. There is also a sector rotation in play, with investors positioning out of BTC and into XRP, LINK, and ETH as they look for opportunities in the wider Crypto Market.
Macro Economics: The latest fund manager survey from Bank of America Securities shows that investors are the most bullish they have been since November 2021, as the S&P 500 and Nasdaq continue to hit record highs. This surge in optimism is highlighted by the fact that most investors are heavily investing in the "Magnificent Seven" stocks, the top stocks currently driving the market. Despite concerns over inflation, the survey indicates that investors are not worried about a recession and are confident about the economy's future. However, there are growing concerns about potential geopolitical risks and the upcoming U.S. presidential election, which could lead to increased volatility in the year's second half. At the same time, most investors anticipate a soft landing for the economy and expect at least two interest rate cuts in the next year. This expectation of a supportive monetary policy is likely contributing to the positive sentiment among investors. However, it is also worth noting that this optimism could potentially make the market vulnerable to any unexpected changes or shocks. Overall, the survey shows elevated confidence and enthusiasm among investors. This could provide further fuel for the current market rally, but it also raises the question of whether this level of positivity is sustainable in the long term.
Equities: Futures are flat, with tech stocks rising for the 7th consecutive day ahead of the retail sales print. European stocks are up for a second session, with markets keeping a close eye on political developments in France. Bond yields are slightly up after a flurry of corporate bond sales. The dollar is gaining against major currencies. Broadcom and Chegg are up in premarket trading, while traders anticipate the retail sales data and Federal Reserve speakers for more insight on potential rate cuts. European stocks have partially bounced back, with the travel, leisure, and banking industries performing well. Novonesis raised its outlook, while Carrefour may face a hefty civil fine.
Additionally, the latest consumer survey data from the New York Federal Reserve shows a rising bullish sentiment among investors, with expectations of higher stock prices in the next 12 months increasing to 41%. However, this sentiment may be driven by the popularization of the financial markets and social media and a lack of caution from lower-income brackets. This exuberance is a warning sign, as such optimism levels have historically marked market cycle peaks. Furthermore, if economic growth slows and profit margins revert to their mean, valuations will likely suffer, and returns will diminish.The Fed and US Treasury: The May retail sales report shows increased sales of 0.1%, less than the expected 0.3% increase. This slower growth is attributed to higher interest rates and inflation affecting consumer spending and could lead to the Federal Reserve lowering interest rates. Gasoline stations and furniture stores saw declines in sales, while sporting goods and hobby stores saw gains. Experts have mixed opinions on the report, with some viewing it as a sign of a slowing economy and others seeing it as a return to normalcy. The report comes after the Federal Reserve indicated that it may cut interest rates this year, raising concerns about a potential economic slowdown.
Geopolitical: Russian President Vladimir Putin visited North Korea for the first time in 24 years, meeting with North Korean leader Kim Jong Un. Putin supported North Korea's stance against Western interference and emphasized cooperation in establishing trade and payment systems independent of the West. The two leaders are expected to sign a treaty for future cooperation on security issues. The US is concerned about the deepening relationship between Russia and North Korea, especially regarding North Korean weapons being used in Ukraine. A military treaty between Russia and North Korea is unlikely, but some analysts believe they may adopt a joint declaration. A border incident occurred just as Putin's plane was en route, but it quickly de-escalated. Some speculate whether Kim may have staged the incident to impress Putin.
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Optimism in financial markets has strengthened significantly as the "magnificent 7" stocks have experienced seven consecutive days of gains. This impressive surge has led to notable outflows from ETFs and a corresponding drop in the crypto markets. Additionally, there is a noticeable rotation from Bitcoin (BTC) to other altcoins as crypto investors seek new opportunities and diversification within their portfolios. We consider this a normal cycle for investors, not a cause for concern. As we mentioned in our last brief, this could be an excellent time for investors with a long-term perspective to "buy the dip," considering that timing the market bottom is impossible.
US stocks are currently at an all-time high, and market optimism remains robust. The May retail report should have caught the Federal Reserve's attention, increasing the likelihood of a rate cut in September. We anticipate no more than one rate cut this year, possibly three to four additional cuts by mid-next year, after which the Fed may pause. The primary challenge for policymakers and the Fed remains the need to get the housing market back on track and address issues affecting this sector.
The current market dynamics reflect a period of strategic repositioning in traditional stocks and the crypto market. Investors actively respond to evolving economic signals, balancing their portfolios in anticipation of future rate cuts and broader economic adjustments. Staying well-informed and ready to act on emerging opportunities will be crucial for effectively navigating this complex financial landscape. This adjustment period underscores the importance of strategic planning and the need for vigilance in tracking market developments.
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The 1Konto Team
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