(Kitco News) – Volatility continued to be the name of the game in Thursday’s trading as asset prices surged following the U.S. market open, only to trend lower in the afternoon as some investors took profits ahead of tomorrow's Personal Consumption Expenditures (PCE) report, which will provide the latest update on inflation.
Stock prices have fully recovered from their August 5 plunge following the unwinding of the Japanese yen carry trade, with the Dow hitting a new record high on Thursday while the S&P came within 25 points of setting a new all-time high.
“Wall Street appeared to largely dismiss Nvidia’s post-earnings dip, despite the smaller-than-expected beat and raised guidance,” said analysts at Secure Digital Markets. “Nvidia’s growing influence on the broader market is evident, as the semiconductor giant, which surpassed a $3 trillion market cap this year, now constitutes approximately 7% of the S&P 500.”
“Economic data released on Thursday supported the stock market's recovery,” they added. “Weekly jobless claims decreased from the previous week, alleviating some recession fears. Additionally, second-quarter GDP growth was revised upward to 3%, from the initial estimate of 2.8%.”
The main focus of Wall Street is now on interest rate cuts, with the debate about the pace and size of future cuts dominating the conversation.
“Traders are currently pricing in a 35% probability that the Federal Reserve will cut its benchmark interest rate by 50 basis points at the upcoming September meeting, and a 65% chance of a 25 basis point cut,” Secure Digital Markets analysts said. “These probabilities were 11% and 88%, respectively, a month ago. For the Fed to enact such a substantial rate cut, the upcoming employment and inflation data for August would need to show significant weakness.”
At the closing bell, the Dow finished up 0.59%, the Nasdaq lost 0.23%, and the S&P was flat.
Data provided by TradingView shows that Bitcoin (BTC) briefly spiked above $61,000 in the morning, hitting a daily high of $61,230 before retreating to lower support levels.
BTC/USD Chart by TradingView
At the time of writing, Bitcoin trades at $59,531, an increase of 0.53% on the 24-hour chart.
Meanwhile, gold continues to prove its safe haven status as the yellow metal held near record highs amid the volatility, with spot gold currently trading at $2,521 per ounce for an increase of 0.67% on the session.
Weaker dollar benefits markets
The afternoon pullback across all markets coincided with a rally in the DXY, which climbed from 100.885 in the early morning to a high of 101.581.
According to TradingView analyst TradingShot, the prospect of rate cuts is expected to result in a decline of the DXY, to the benefit of asset prices.
“This is a cross-chart analysis between the S&P500 index (SPX) and the U.S. Dollar Index (DXY) since the 2008 Housing Crisis,” he wrote. “Ahead of widely anticipated Fed rate cut next month, it is useful to see how the Dollar has impacted from its perspective the stock market on a multi-year basis.”
“As you can see, the DXY has been trading within a Channel Up since the 2009 Housing Crisis bottom,” TradingShot said. “At the moment, it is under the Resistance of the Lower Highs trend-line (dashed), and a rate cut should apply even stronger selling pressure and keep it under. There is still some way to go until it hits the bottom of the Channel Up again.”
He said he believes that “the stock market is at the point where it finishes the recovery phase (blue Arc) and will enter the expansion phase (green Channel Up), at the beginning of next year. As a result, a rate cut [or] series of rate cuts by the Fed will do wonders on the S&P 500, giving investors steady long-term opportunities to buy low and sell high within a strictured Channel.”
Bitcoin is also expected to benefit from a rate-cut-driven pullback in the DXY.
“$BTC experiences the highest velocity upside move when the dollar breaks lower,” tweeted Jamie Coutts, Chief Crypto Analyst at RealVision. “If the DXY is weakening from here it's being coordinated by the Fed and global liquidity is being injected.”
Market analyst Pat also noted the correlation between BTC and the DXY, saying that pullbacks in the dollar index have historically been “significant risk ON turning point[s]” for King Crypto.
Look at how $BTC traded following the rejection of the dollar from the $101 level the previous two times. It was a significant risk ON turning point.
All eyes are on the $DXY here as it looks to be breaking back under its almost 2-year range low and key $101 level ??? pic.twitter.com/ogHXF0Xphs— Pat (@PattaTrades) August 28, 2024
“Whether $DXY was to reject from the underside here or not, we should pay close attention to this $101 area,” Pat said in a follow-up post. “Equally, a reclaim of $101+ on the dollar could be a good sign for risking OFF in crypto markets. Need more time here for development.”
Altcoins trade mixed
It was a mixed day for the altcoin market, with the top 200 coins evenly split between winners and losers.
Daily cryptocurrency market performance. Source: Coin360
LayerZero led the field with a gain of 10%, followed by increases of 8.3% and 8.2% for Flare (FLR) and ConstitutionDAO (PEOPLE), respectively. Floki (FLOKI) was the biggest loser, falling 10.1%, while Artificial Super Intelligence (FET) declined by 9.1%, and io.net (IO) lost 8.5%.
The overall cryptocurrency market cap now stands at $2.08 trillion, and Bitcoin’s dominance rate is 56.2%.
