Bank of America Market Strategist Says ‘Summer Rally Is Over’ as Crypto and Stocks Slide Ahead of Fed Rate Hike This Week

After the Tuesday market drop, digital currency markets, precious metals and stocks fell another leg on Monday. Market strategists believe that a significant Fed rate increase is imminent this week, making it one of the most difficult weeks in over three months. Savita Subramanian, Bank of America's analyst, believes that the U.S. Federal Reserve has "more work to do" and an aggressive central banking may be "anathema to stocks that have benefited greatly from low rates and disinflation strong>

Crypto, Precious Metals and Equities Show Volatility ahead of Fed Rate Hike — Pseudonymous analyst Plan B Says that Bitcoin and the S&P 500 are Correlated, but are 'Completely Different Worlds.

According to Bank of America's market strategists, Savita Subramanian, a hawkish Fed could be repellent or kryptonite for assets that have benefited from easier monetary policies and stimulus. After a week of intense trading activity, global assets have had a difficult start to Monday. All four major Wall Street stock indexes started Monday morning (9:30 a.m.) lower. The benchmark stocks experienced a slight rebound at 3:00 PM (ET), indicating extreme volatility and uncertainty in the market.

Subramanian and his team believe the S&P 500 will lose 8% more this year. Subramanian also stated that the "summer rally" is over. On Monday, the digital currency markets fell 1.61% and are now just above $900 billion at $933.17billion. Bitcoin (BTC), and ethereum, (ETH) have lost 1.67% against the U.S. Dollar over the last 24 hours.

Precious metals such as silver and gold suffered losses on Monday as well. Gold lost 0.12% while silver fell by 0.74% against US dollars. Although the U.S. equity markets have been highly correlated with bitcoin, some BTC market analysts believe that bitcoin is an entirely different beast.

Plan B, a pseudonymous analyst, tweeted Monday that "[Bitcoin] is correlated with S&P 500." "However, during the same time that S&P rose from $1K $4K and [bitcoin] leapt from $10 $20K. 4x versus 2K… totally different worlds. "Short-term movements are noise; long-term trends are the signal."

Bank of America Market Strategists: "The Fed has More Work to do" — Greenback Jumps Higher, 10-Year Treasury notes Tap an 11-Year Low

Economists and analysts believe that the U.S. Federal Reserve would raise the target federal funds rates by 75 basis points this week. Subramanian, Bank of America, stated that the Fed still has a lot of work ahead of it. However, lessons learned from over four decades ago can help us to combat inflation.

Stocks that have enjoyed low rates and disinflation may find a hawkish Fed anathema. The S&P 500 is the most affected, but the Bank of America strategist's note states that a hawkish Fed could be anathema to stocks that have benefited from low rates and disinflation (i.e. Subramanian's view is based on the mid-July report by Bank of America economists.

The bank's economists had previously predicted a "growth recession" but the summer forecast for the U.S. economy suggested otherwise. Sven Henrich, market analyst, quoted Fed chair Jerome Powell's comments during a press conference last year, in which Powell stated: "Clearly, today’s 75 basis point (bps), increase is an unusually big one and I don’t expect moves like this to be common. Henrich then mocked Powell by noting that the central bank will continue to implement the third rate hike of 75bps.

Nearly every asset class has a strong link to inflationary pressures, and the Fed's Monetary Policy. However, the U.S. Dollar continues to rise against other fiat currencies. On Monday afternoon (ET), the U.S. Dollar Currency Index tapped 109.756 and the euro reached parity with the greenback again. One Japanese yen is equal to $0.0070 per dollar, while 10-year U.S. Treasury Notes reached an 11-year high of 3.518% on September 19.

What do you think of the Bank of America's market strategist's view on an aggressive Fed? And the S&P 500 shedding another 8% before the year ends? Comment below to let us know your thoughts on this topic.

By: Jamie Redman
Title: Bank of America Market Strategist Says ‘Summer Rally Is Over’ as Crypto and Stocks Slide Ahead of Fed Rate Hike This Week
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Published Date: Mon, 19 Sep 2022 20:30:35 +0000

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