Will there be fluctuations in the bull market in 2024? Will liquidity risks create gold pits?

In 2024, ETFs, halvings, and interest rate cuts will bring a trending bull market to the market. Of course, this bull market will not be smooth sailing, and there will be fluctuations in the middle. Next year, the biggest source of volatility should be liquidity risk.

The decisive factor in capital market conditions is liquidity, which in human terms means there must be money in the market.

In 2022 and 2023, the Federal Reserve carried out unprecedented interest rate hikes, bringing the interest rate to 5.5%, accompanied by a reduction in its balance sheet. Theoretically, this is a severe tightening of liquidity, and the capital market will correct. In March 2023, Silicon Valley Bank was hit by thunder, leading to a crisis in the U.S. banking industry, and the crypto market also suffered a sharp decline, which was the result of interest rate hikes. But since the Federal Reserve rescued the banking industry, the liquidity crisis seems to have disappeared, and U.S. stocks have hit record highs. This shows that against the backdrop of interest rate hikes and balance sheet reduction, market liquidity has been relatively abundant over the past year. So what is the reason for abundant liquidity? Will liquidity remain sufficient in a high interest rate environment?

The Federal Reserve suspended interest rate increases at its December interest rate meeting. Federal Reserve Chairman Powell issued a dovish signal, which generally meant that he did not have to wait until inflation reached 2% before considering an interest rate cut. Economic forecasts showed that interest rates would be cut three times in 2024, with the median interest rate expectation of 4.6 %, which is a rare good thing for the market. The US stock market hitting new highs shows that the market has fully priced in the Fed's substantial shift. It can be said that this round of interest rate hikes is basically over. It depends on when the interest rates will be cut in the future, and the timing of this interest rate cut is where the biggest disagreements within the Fed occur. Why are there disagreements within the Fed over the timing of a rate cut? The core reason is still the state of market liquidity. The United States does not want the banking crisis and the U.S. long-term bond sell-off crisis to happen again. So the core issue remains: liquidity.

This year, the good growth of US stocks or crypto markets shows that market liquidity is still good. Since the beginning of this year, the Federal Reserve has been passively shrinking its balance sheet by US$95 billion every month. In August, the Treasury Department issued bonds frantically. Most of them were short-term bonds, and these short-term bonds were basically taken over by funds withdrawn from overnight reverse repurchases. . This also led to a decrease in overnight reverse repurchase usage by 1.0% in 23 years.9 trillion dollars. #BTC