(Kitco News) – The Fed-fueled euphoria that helped pump gold and stocks to new record highs over the past couple of days began to fade on Friday morning as asset prices corrected lower after poor earnings from several companies, including FedEx, brought the reality of the economic situation front of mind for investors.
“Thursday’s rally saw the NASDAQ close 2.5% higher, while the mid-cap Russell 2000 added 2.1%. Gains for the Dow and S&P 500 were a tad more restrained at 1.3% and 1.7% respectively,” noted David Morrison, senior market analyst at Trade Nation. “But it was these two which forged fresh records, with the Dow closing above 42,000 for the first time in its long history.”
“Investors had a lot to absorb on Wednesday, and not much time to assess it all, following the Federal Reserve’s clunking 50 basis point rate cut that evening,” he added. “Stock indices had ended that session with small losses. But the buyers were out in force yesterday.”
In the lead up to the rate cut, many analysts had warned about the negative effects of a larger cut, as history shows that markets tend to enter a recession following an initial euphoric surge higher.
“Any concerns about why the Fed decided to kick-start its easing programme with what many view as an unnecessarily large cut were cast aside,” Morrison said. “Instead, the feeling is that this first rate cut since March 2020, and the prospect of more to come this year and beyond, fired the starting pistol for what many believe could be a strong rally into the year-end. But are investors getting carried away? Could there be reasons to temper the current bullishness? For sure.”
He said the “50 basis point cut seemed to come out of nowhere. It certainly wasn’t on the cards until a few days before the meeting itself, when all FOMC members were in ‘purdah’, and unable to talk publicly about monetary policy. Recent employment numbers have disappointed, and initially raised fears of a ‘hard landing’. And while in other respects the US economy appears to be ticking along quite smoothly, it doesn’t stand in complete isolation from the rest of the world.”
Morrison highlighted that “China’s economy is in poor health, while the European Union is sclerotic and uncompetitive, so says former ECB President Mario Draghi. National debt should be a major concern, in the US and elsewhere. Yet even with the US Presidential Election little more than six weeks away, it’s completely ignored by both candidates, who instead emphasise how much more they’re willing to spend, and thereby exacerbate the problem. Debt is an issue for another day.”
“For now it appears that dips are buying opportunities, and new records beckon,” he concluded. “But for the more cautious out there, a quick glance downward is enough to induce a nasty bout of vertigo. Equities have rallied a long way in a short space of time, so disciplined risk management is more important than ever.”
While stocks struggled in the morning session, gold bulls continued to stampede into uncharted territory as the yellow metal hit a new record high near $2,620/oz on Friday morning and currently trades at $2,613/oz, a gain of 1.1% on the session.
Cryptos also rallied overnight before entering into a consolidation period on Friday morning.
“Active buying continues in the crypto market, with its total cap rising 3.2% in 24 hours to $2.21 trillion, reviving the fight to break the previous local high of $2.27 trillion a month ago,” said Alex Kuptsikevich, senior market analyst at FxPro. “The local low in early September was above the previous low, and a break of the recent highs could provide fresh buying momentum and signal a break in the multi-month downtrend.”
“Bitcoin (BTC) broke above $64K on Friday morning and is fast approaching a test of the emotionally important 200-day moving average, which also holds the late August highs,” he added. “Overcoming this resistance would open the way to the upper boundary of the descending channel at $66K and a break of the downtrend on the rise above $68K.”
BTC/USD Chart by TradingView
According to market analyst Daan Crypto Trades, $65,000 is the resistance level to overcome that will signal that the bull market is officially back.
#Bitcoin The key level is $65K.
This is a big level in terms of liquidity as well as it would signal a bullish market structure break.
As it would make for a higher high, after the recent higher low since the August dump. pic.twitter.com/8GVna5rBcO— Daan Crypto Trades (@DaanCrypto) September 20, 2024
As it stands now, September is on track to be a positive month for Bitcoin, with its price currently up nearly 8% since the start of the month. If it manages to hold onto the gains, history shows that October, November, and December will be postive months as well.
Historically speaking, every time September closed green for Bitcoin, October, November and December were in the positive too? pic.twitter.com/06OhkbUkX2
— Bitcoinsensus (@Bitcoinsensus) September 20, 2024
At the time of writing, Bitcoin trades at $62,882, a decrease of 0.38% on the 24-hour chart.
