The unexpected non-farm payrolls and poor earnings reports from Intel and other companies led to another sharp drop in U.S. stocks yesterday, putting the Federal Reserve in a difficult position. Let’s break it down.
I said in my previous article that I expected a correction in the US stock market in September. It is a little earlier than I expected, but this week's data forced traders to run ahead and price the Fed behind the curve. From some indicators, the US economy has already fallen into recession, but the Fed will not echo this information. Even yesterday, Chicago Fed President Goolsbee said that the economy is not close to recession, and he also said that he would not look at only one month's data. Now the market and the Fed are at odds with each other. Some investment banks even think that the Fed needs to cut interest rates by 50 basis points in September and November, but the Fed is still not letting up, so there is a disagreement here, and the stock market does not like disagreements. They don't like the Fed to lose control, and now it is the market that is in power, so the stock market is sold off. Any small bad news is magnified. For example, Arm's financial report on Wednesday was okay, but the market decided to sell the stock as long as it was a little dissatisfied. Intel also suffered a bloodbath yesterday. It is still some time before September. If the market still has not changed its mind by then, a 25 basis point interest rate cut is not enough, which will be regarded as the hawkish interest rate cut I mentioned earlier. The market is bound to protest, so the current situation is very bad. The market is giving orders to the Fed, and the Fed is losing control. This is not good news for US stocks, the US dollar, or even the US market. Gold also plummeted after rushing to a historical high.
The non-farm payrolls are weak, the dollar and yields will continue to fall, and cryptocurrencies should continue to rebound. But here is a key point, if cryptocurrencies fail to rebound, then we should be worried. Especially in the US market on Friday, the big cake has reversed many times, which is what I was most worried about yesterday. Although I expect cryptocurrencies to set new highs, I am also worried that it will not be able to do so.
There is an old saying in the trading industry that anyone who has been trading for decades knows. If something should go up but doesn't, that's information in itself. If it should go up but doesn't, it means it will go down. This was the case in the market last night. I'm not sure the specific reason for the sell-off. It may be that traders like me saw this and thought: it doesn't seem to be able to go higher, there must be something fishy, so I sold it. It may also be that traders were forced to stop out due to margin calls. They lost a lot of money in the yen or US stocks and had to sell their positions as soon as possible. In any case, cryptocurrencies disappointed yesterday, so what's next? I will reassess next week and need to see more information. I'm not saying that the bull market is over, but I definitely need to be more careful next week.
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