Asset traders adopted a risk-on approach following the Federal Reserve’s unexpected decision to cut interest rates by 50 basis points. This move fueled significant gains across various markets, including stocks, cryptocurrencies, gold, and silver, as investors rushed to allocate capital before further easing drives prices higher.
On Wednesday, the Fed lowered its benchmark rate to a range of 4.75% to 5%, marking its first reduction in four years. While analysts at Secure Digital Markets had anticipated a rate cut, they noted that the scale surprised many. “The Fed’s projections indicate potential for another 50 basis points of cuts through 2024,” they reported. Additionally, the unemployment rate is now expected to rise to 4.4% by year-end, up from June’s estimate of 4%. Futures markets are pricing in a 75 basis point cut by year-end, with significant probabilities for cuts in November and December.
However, analysts warned that while rate cuts are typically seen as bullish for risk assets, their timing could signal deeper economic issues. They cautioned traders to monitor critical indicators such as employment data, noting that aggressive rate cuts historically preceded significant market downturns, as seen in 2001 and 2007.
Despite these warnings, traders seemed undeterred, with the S&P 500, Dow, and Nasdaq all closing significantly higher—up 1.7%, 1.26%, and 2.51%, respectively.
In the commodities market, gold rebounded after dipping from a record high of $2,600 to $2,550, eventually trading at $2,584.70 per ounce, a rise of 1.04%. Silver also performed well, gaining 2.5% to reach $30.79 per ounce.
Cryptocurrency markets saw Bitcoin (BTC) gain momentum as well. After initial volatility, Bitcoin climbed from support at $60,000 to a high of $63,903, currently trading at $63,080—an increase of 4.59% over the last 24 hours. Market analyst Bloodgood noted that while the Fed’s decision may seem beneficial, the abruptness of the cut raised concerns about underlying economic health, recalling similar actions taken in past recessionary periods.
Bloodgood highlighted the importance of watching key levels, particularly the $65,000 mark. “If Bitcoin can break above this threshold, we could see increased investment flow, possibly pushing it toward $70,000 in the coming weeks,” he suggested. Conversely, failing to maintain support at $60,000 could result in a challenging period ahead.
Analysts on TradingView echoed this sentiment, emphasizing the significance of the $65,000 level and suggesting that Bitcoin’s recent performance indicates a potential shift from bearish to bullish momentum. They noted that a decisive break above this price could initiate a broader rally, targeting levels as high as $80,000.
In addition, altcoins surged, with only two of the top 200 cryptocurrencies recording losses on Thursday. Altlayer (ALT) led the charge with a remarkable 42.1% increase, followed by Popcat (POPCAT) and cat in a dogs world (MEW), both posting substantial gains. The overall cryptocurrency market cap now stands at $2.19 trillion, with Bitcoin’s dominance rate at 57.3%.
Overall, the combination of the Fed’s rate cut and positive market reactions underscores a robust return to risk appetite among traders, though caution remains advisable as economic indicators unfold.
