Good afternoon all. Let's dive into a big one.
Firstly, I have done a large breakdown over the last 2 days on professionals opinions and digesting this into my research below. I will now dive into all and explain this along with market pricing.
🪙 Bond Market
So, the main volatility has come from the Bond market. We can see that across the curve (2 Year, 5 Year, 10 Year, and 30 Year), Yields have plummeted in the past few trading weeks. Falling yields mean the Bond market is pricing in the FED to cut rates in a quarter or two's time due to there being a risk now that something may have broke... the banks. However, we have seen Yields bounce slightly in the past few days. That is on the feeling that the Banking crisis may have been sured up by the FED providing liquidity against the Banks Bonds portfolios (using the Bonds the bank owns as collateral for these loans). Therefore, Yields have gone higher as this may mean the FED has another rate increase or two left in them. In my opinion, I think the FED will be done in May (next FED meeting) unless data screams otherwise (unlikely).
💵 Equities
The Equities market hasn't really moved higher and got ahead of itself yet like the Bond market has, although this may be something we experience in the next week or so. It is my hope that this is the case so we can fill Shorts on the SPX (S&P) at $415 - $430 range.
Essentially, the market is and has got excited at the thought of the FED pausing rates and then eventually cutting them. The issue is this, usually the FED cuts rates because something has systemically broken, or is about to, and they need to stimulate growth. Now, growth/the economy isn't the problem, it's inflation. Take a look at the graph showing the performance of Equities when the FED has cut rates.
🌐 Macro Trend Summary
I think right now we're at a point where the risk of recession is becoming more heightened. This is due to the banking issues. My feeling is this is how it'll play out...
Regional banks are already distressed as they're suffering from a lack of liquidity (money is tied up in Bonds) and people are taking their money out of the Banks and buying treasuries with it... they can get 3-4% on a 6 month Treasury, or 0.1% sat in the bank... I know what I'd choose!
These regional banks are responsible for providing credit to businesses. If they have to pull back on this, this'll see businesses struggle to get credit, which'll mean these businesses can't fund new products/their business/whatever, and therefore no growth. An economy that sees a pullback in growth will see corporate Earnings come down dramatically and therefore the stock prices will also come down.
Soooo... S&P lower in the coming months in my opinion. Just hoping it goes higher in the short term.
💸 Crypto
I think Crypto will have to follow Equities, as it still has a relatively high correlation. I just can't see Crypto/BTC being immune to this. So again, I think we see BTC come lower. I think the next major support of $25,000 will be a key point. If lost, then I see the $21,000 - $22,000 range as being the main area to consider adding to long-term Longs again ie, big spot buys for BTC/ETH/SOL whatever else. BTC chart tagged.
