Nasdaq and Cryptocurrencies Most Likely to Fall Due to Fed Policy


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jenga riskTech stocks and cryptocurrencies, darlings of easy-yield speculators, are currently the most vulnerable asset classes as the Federal Reserve embarks on aggressive monetary tightening by raising interest rates and cutting a balance sheet of almost 9 trillion dollars. The situation is not improved by the fact that other central banks from Canada to Europe are likely to follow Fed policymakers. At least that’s the story of the most popular responses from 687 participants in the latest MLIV Pulse survey.

The Fed ended the bull market on Wall Street

The US Federal Reserve (Fed) will begin to reduce its assets this month through a process known as quantitative tightening. So it looks like the era of super cheap money is over for the time being.

All of this is happening at a time when the Fed is following the most aggressive cycle above interest rates in response to soaring inflation. for decades. The main concern of respondents to the MLIV survey is how much the US central bank will raise interest rates during this cycle.

About 61% of respondents said the level at which the final federal funds rate would peak was more important than the decline in the balance sheet.

This historic change is seen as a major threat to risky assets such as stocks and digital tokens.

The vast majority – 64 percent – say the Wall Street boom is finally over.

– The withdrawal of capital and liquidity will continue to be felt where it has brought the most benefits, i.e. the most speculative parts of the market Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, told Bloomberg.

Individual investors and market strategists took part in the MLIV survey of the riskiest assets of the QT era. Respondents who were active in the market during the financial crisis more than a decade ago are particularly concerned that the shrinking Fed balance sheet will hurt junk bonds. However, they represent only 7 percent. New entrants are more likely to worry about its impact on tech stocks and cryptocurrencies.

NDE

Draining money from the system tends to tighten financial conditions, which hampers economic growth. This could drag tech stocks lower given their reliance on optimism about future earnings.

The end of bond purchases by the Fed also forces the Treasury to sell more debt on the open market, which could put pressure on higher bond yields, which play an important role in the valuation of companies listed on Wall. Street – which is particularly unfavorable to so-called growth stocks.

The growing correlation between tech company stocks and cryptocurrencies is also significant. This reliance has intensified markedly during this year’s decline.

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At the same time, I would like to remind you that every Sunday, just before the opening of the markets, we agree during the clearance of traders. During the 2 hour meetings, we will present anything that needs attention in the coming days. In addition to fundamental analysis, we will also examine the technical situation of the most interesting financial instruments.

Meeting schedule:

  • Technical overview of the most popular instruments
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See you just before the markets open!

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