Judging from the results of the past few months: before the rate cut, especially when it is close to the rate cut, the withdrawal of funds from the risk market is more obvious. Taking the current situation as an example, regardless of the face rate, the yield of medium- and long-term US bonds has dropped from a high of 4.5%-5% to the current 3.5%-4%.
If the rate cut is announced, or even enters a continuous rate cut cycle, the actual yield will inevitably fall further, reflected in the rise in bond prices. From the perspective of funds, now may be the last chance to increase holdings of US bonds and lock in a 4% yield, which can last for 10 or even 30 years, and is still very attractive. After all, the long-term 4% risk-free yield is still extremely tempting.
Therefore, funds seized the last time window (August-September) and quickly withdrew from the risk market and poured into the fixed income market of US bonds, resulting in the absence of large funds in the crypto market in the past few months, and a kind of "darkness before dawn". The rate cut is an important turning point. Before the rate cut, there was no sense of urgency, and investors generally believed that they could continue to gain returns in the risk market. As the rate cut approaches, investors begin to have a psychological change of "catching the last train".
Therefore, the closer to the rate cut, the less expected price increase, but the liquidity continues to decline. However, by the time the rate cut is officially announced, the funds that should be withdrawn have already been withdrawn, and the remaining funds are more determined. If the US economy does not experience a major recession, as the rate cut continues, the liquidity situation will gradually improve, driving the market to gradually recover. The current high market value of US stocks is supported by AI technology stocks, and it takes a long time for the valuation and earnings of technology stocks to match. Although the risk of economic recession exists, it will not come immediately.
After the Fed officially cuts interest rates, although liquidity will not improve significantly immediately, there is a process of repair, so the time window in the next few months is generally a cautious recovery process.
