The economy refuses to die – which means it’s time to take risks.
The US economy seems to be refusing to be kicked off the rails. It added a staggering 336,000 jobs in September, defying many expectations. This achievement will be even more impressive against the backdrop of high yields on long-term Treasury bonds and rising mortgage rates.
The message from the jobs data is clear: The world's largest economy continues to post strong growth despite significant monetary tightening. It's a testament to the economy's resilience, and suggests high demand is here to stay for a while.
Although this news may send shivers down the spine of some, especially those who are involved in stocks, it is important to understand the bigger picture. Stocks may seem less enticing when you can secure a 6% return in a savings account, but we're reaching an inflection point with bonds.
It has to get worse before it gets better.
Bank of America Global Research has looked at the historical performance of the bond market, which has been described as the “best bond bear market ever.” But the analysis is not all doom and gloom – there are signs that the relentless sell-off in US Treasuries may be coming to an end. And if we do indeed see a recovery, it could signal the start of a new bull market for risk assets.
Related: Bitcoin ETFs: A $600B milestone for crypto
Turning to crypto, it is important to note that the short-term price action of Bitcoin (BTC) remains dependent on regulatory decisions, particularly those related to the Bitcoin spot ETF. So far, all the positive news surrounding spot ETFs has failed to pull Bitcoin out of the bullish pattern. A green light on this front could unlock significant inflows into BTC, providing the long-awaited impetus for a rebound. It would be remiss not to mention the FTX saga that is currently playing out in the courts and is damaging the reputation of crypto.
But here's the thing – what could be bad news for financial markets can be good for the broader economy. The Federal Reserve plays a critical role in shaping the path for risk assets, and has just two more meetings before the end of the year. If the Fed decides to hold off on further rate hikes, it could act as a stimulus, spurring market speculation of an impending rate cut. This speculation, in turn, could set the stage for a high-risk rally across various asset classes, including cryptocurrencies.
A festive feast could set the tone for 2024.
The last three months of the year often promote a higher Santa parade. It could soften the blow after last year and pave the way for a much-loved 2024. History shows that the market will experience increased buying activity during this festive season and positive sentiment among investors. Among these factors, regulatory decisions regarding spot ETFs and any potential pause in rate hikes, or changes in the Fed's message regarding future hikes, will be closely watched. So while euphoria from September jobs data tends to drive immediate headline moves in the market, it doesn't necessarily drive the Fed's longer-term thinking.
Related: Sky-high interest rates are exactly what the crypto market needs.
Looking ahead to 2024, we are faced with the prospect of a BTC “tap” in April, a historically positive event for crypto. However, the broader macroeconomic conditions have shown some signs of instability. Bitcoin's ongoing correlation with stock markets adds further complexity to the equation. The outcome hinges on the Fed's message — and the Securities and Exchange Commission (SEC) — on spot ETFs. If the macroeconomic backdrop remains uncertain, the Fed could move toward rate cuts, which could change the direction of both traditional and digital asset markets.
With hints of a bond market recovery and the promise of regulatory transparency in the crypto space, we can see bright days ahead. As we approach the festive season, the prospect of Santa's support renews the kind of hope and momentum that fuels the crypto market. While some challenges loom, history teaches us that sometimes, it gets worse before it gets better.
Lucas Kiely is the Chief Investment Officer of the Product Application where he oversees investment portfolio allocations and leads the expansion of the diversified investment product range. He was previously Chief Investment Officer at Diginex Asset Management, and was Senior Trader and Managing Director, QIS and managed the structured derivatives business at Credit Suisse in Hong Kong. He was Head of Special Derivatives at UBS in Australia.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
