Yesterday, Bitcoin surged 5%, from around 58,000 to 61,000. Why did a big positive line attract so many investors? It is very likely that many people are planning for the SEC to announce a rate cut tonight, because the SEC will announce the result at 2 a.m. Beijing time on September 18. Currently, many institutions and analysts believe that the probability of a 50 basis point rate cut is more than 60%. So today we will look at the overall market trend after the rate cut from several dimensions.
1 Big environmental data
The current Federal Reserve benchmark interest rate is 5.25%-5.5%, the highest level in 20 years.
Economic data from the United States over the past few months show that inflation has resumed a steady decline, moving toward the Fed's 2% target. But the labor market has cooled, with the unemployment rate rising to 4.2% in August from 3.7% at the end of last year. Monthly non-farm payroll growth has slowed to an average of 116,000 in the three months to August, compared with 212,000 in December 2023. So non-farm payroll data has also slowed down.
A report released by the U.S. Bureau of Labor Statistics on Wednesday showed that the Consumer Price Index (CPI) rose 2.5% year-on-year in August, 0.4 percentage points narrower than in July, the lowest level in three and a half years, and rose 0.2% month-on-month, the same as last month.
After excluding the more volatile food and energy prices, the core CPI rose 3.2% year-on-year, the same as the previous month, and rose 0.3% month-on-month, an increase of 0.1 percentage point from the previous month.
Therefore, with enough interest rate hikes, inflation has been brought under control, so the side effects of the rate hikes - worsening economy and employment - have become the main issues to be addressed. Now is the time to start loosening monetary policy, and 25 basis points is the smallest unit of the Fed's regulation each time. So this time, whether it is 25 basis points or 50 basis points, it will be adjusted dynamically based on the data performance of the next month.
2. So how did the U.S. stock market perform after each interest rate cut?
1. Interest rate cuts after the dot-com bubble burst in 2001
Background: The Internet bubble burst in 2000, and US stocks (especially technology stocks) fell sharply. In order to cope with the risk of economic recession, the Federal Reserve began to cut interest rates several times from January 2001.
· U.S. stock performance: Although the Federal Reserve cut interest rates several times throughout 2001, the U.S. stock market still performed relatively weakly as the market was still digesting the impact of the bursting of the Internet bubble. The Nasdaq Composite Index (mainly representing technology stocks) fell sharply during this period. However, the interest rate cut provided liquidity support to the market, and the U.S. stock market eventually rebounded strongly when the economy recovered in 2003.
2. Rate cuts during the 2008 global financial crisis
·Background: The subprime mortgage crisis triggered a global financial crisis. The Federal Reserve began to gradually cut interest rates in September 2007, and significantly lowered interest rates in 2008, while launching a quantitative easing policy.
· U.S. stock performance: Despite the Federal Reserve's extremely loose monetary policy, U.S. stocks still experienced a sharp decline in 2008, with the S&P 500 index falling more than 30% throughout 2008. However, interest rate cuts and quantitative easing policies helped the market bottom out in March 2009 and started a bull market that lasted for many years.
3. The Federal Reserve’s preventive rate cut in 2019
Background: The global economic growth slowed down in 2019, and the uncertainty of the Sino-US trade war caused market volatility. The Federal Reserve cut interest rates three times in 2019, mainly to prevent economic recession.
Performance of U.S. stocks: The Fed’s interest rate cuts helped stabilize market sentiment, with both the S&P 500 and the Dow Jones Industrial Average hitting record highs in 2019. The interest rate cuts increased market liquidity and boosted investor confidence, driving the U.S. stock market upward.
4. Emergency rate cuts during the 2020 coronavirus outbreak
Background: As the COVID-19 pandemic spread rapidly around the world, the Federal Reserve made two emergency rate cuts in March 2020, lowering interest rates to near zero and launching a large-scale quantitative easing and rescue program.
Performance of US stocks: In the initial stage of March 2020, despite the emergency rate cut by the Federal Reserve, US stocks still experienced a sharp sell-off, with the S&P 500 and Dow Jones Index falling by about 30% from their highs respectively. However, due to the extremely loose monetary and fiscal policies adopted by the Federal Reserve and the US government, US stocks rebounded quickly in the short term and hit a record high in the second half of the year, especially technology stocks leading the market upward.
In fact, we can see that, apart from the ones in 2001 and 2008, the two times in 2019 and 2020 were both rapid rebounds in the short term, because the two economic crises in 2001 and 2008 were indeed very large. Therefore, 2019 and 2020 are more meaningful for reference, and we can also see that these adjustments made by the Federal Reserve have achieved results.
3. Current situation of US stocks
In fact, the U.S. stocks are currently in a state of rushing to a new high. The S&P 500 has not been able to break through 5670 (it is just one step away), and after the Nasdaq came down from 18671, it has been rushing to 18000, and it is just one step away from the top range. Therefore, this interest rate cut is a major positive for the U.S. stocks. Once the U.S. stocks break the previous high, there will definitely be another wave of explosions (you can see the previous K-line trend). We have analyzed the U.S. stocks a lot before.
4. Current BTC on-chain data analysis
So what is the current data of BTC? Let’s take a look at the trading situation. The trading volume in recent months is about the same (ARKM data). The current weekly trading volume is around 20 million, which is slightly lower than the 40 million in March, but better than around October last year. However, at present, the trading volume has not increased.
Then we look at the net outflows of major exchanges (within 3 months), which are almost the same, probably decreasing by about 1%-2%.
And we can see that the net inflow of miners is also negative. There was a large wave of coin selling from September 5th to September 10th, and the address balance of miners was also declining.
Since there is a slight outflow from exchanges and miners, where did the coins go? Let’s look at the number of whale addresses, which is currently increasing. This means that the big players have already started to act. And there is another point, that is, under what circumstances will people transfer coins from exchanges? It must be to the wallet, so it must not be a short-term trader, so should you learn from the whales or be a small shrimp?
