The US economy seems to refuse to go off the rails. He added a staggering 336,000 jobs in September, defying most expectations. This achievement becomes even more notable in the context of rising longer-term Treasury yields and rising mortgage rates.
The message implicit in the employment data is very clear: the world’s largest economy continues to advance, even in the face of aggressive monetary tightening. It is a testament to the resilience of the economy and suggests that higher interest rates are here to stay for an extended period.
While this news might send shivers down the spines, especially to those investing in stocks, it’s crucial to understand the bigger picture. stocks may seem less attractive when you can lock in a 6% return with a savings account, but we may be reaching a tipping point with bonds.
It has to get worse before it gets better.
The bond market has witnessed a historic crash, described by Bank of America Global Research as the “biggest bond bear market of all time.” But the analysis is not all doom and gloom: there are signs that the relentless sell-off in US Treasuries could come to an end. And if we do see a recovery, it could signal the start of a new bull market for risk assets.
Related: bitcoin ETF: A $600 Billion Turning Point for crypto
Regarding cryptocurrencies, it is essential to recognize that the short-term price action of bitcoin (btc) remains to some extent linked to regulatory decisions, particularly those related to a bitcoin spot ETF. So far, all the positive news about spot ETFs has failed to break bitcoin out of its holding pattern. A green light on this front could trigger substantial inflows into btc, providing the long-awaited impetus for a resurgence. We would also be remiss not to mention the ongoing FTX saga, which is currently playing out in court and damaging the reputation of cryptocurrencies.
But here’s the twist: What may mean bad news for financial markets could be good news for the broader economy. The Federal Reserve plays a key role in setting the direction of risk assets and only has two more meetings before the end of the year. If the Federal Reserve decided to suspend further rate hikes, it could act as a catalyst, causing the market to anticipate an imminent rate cut. This anticipation could, in turn, set the stage for a massive risk rally across several asset classes, including cryptocurrencies.
Festive revelry could set the tone for 2024
The last three months of the year usually feature an intense display of Santa. After the year we’ve had, it could soften the blow and pave the way for a more pleasant 2024. History shows that the market tends to gain momentum during this holiday season, with an increase in buying activity and positive sentiment among investors. Among these factors, regulatory decisions regarding spot ETFs and any potential pause in rate hikes, or even a change in the Federal Reserve’s messaging on future hikes, will be closely watched. So while the joy of September jobs data tends to drive immediate moves in market headlines, it doesn’t necessarily drive the Fed’s long-term thinking.
Related: Sky-high interest rates are exactly what the cryptocurrency market needs
Looking ahead to 2024, we face the prospect of a btc “halving” in April, a historically positive event for cryptocurrencies. However, broader macroeconomic conditions have pointed to some signs of instability. bitcoin‘s current correlation with stock markets adds an extra layer of complexity to the equation. The outcome depends on messaging from the Federal Reserve and decisions made by the Securities and Exchange Commission (SEC) regarding spot ETFs. If the macroeconomic backdrop remains uncertain, the Federal Reserve could opt for rate cuts, which could alter the trajectory of traditional and digital asset markets.
With signs of a bond market recovery and the prospect of regulatory clarity in the crypto space, we could see brighter days ahead. As we approach the holiday season, the possibility of a Santa Claus rally rekindles the kind of hope and momentum that ignites the cryptocurrency market. While some challenges may arise, history teaches us that sometimes things get worse before they get better.
Lucas Kieli is Chief Investment Officer at Yield App, where he oversees investment portfolio allocations and leads the expansion of a diversified range of investment products. Previously he was chief investment officer at Diginex Asset Management and senior trader and managing director at Credit Suisse in Hong Kong, where he led QIS and structured derivatives trading. He was also head of exotic derivatives at UBS in Australia.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.