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Ether and other major altcoins fell further along with stock indices on Friday despite indicators that raised the possibility that the U.S. Federal Reserve would begin a rate cut cycle in September.
According to The Block’s Price Page, Bitcoin has been in a downward trend over the past 24 hours, down 3%, trading at $57,189 at 7:51 a.m. ET. Major altcoins like Ether and Solana have also fallen 2% and 5%, respectively, over the same period. The downtrend in the crypto markets was also reflected in stock indices, which were mostly in the red at the end of trading on Thursday. The Nasdaq Composite and the S&P 500 were down 1.95% and 0.88%, respectively, at the end of trading on Thursday.
This reaction contradicts the conventional wisdom that stocks should react positively to signals of rate cuts.
Lower-than-expected inflation numbers fail to reverse downward trend
Market participants were provided with two positive indicators this week that support the case for the start of a rate-cutting cycle: Thursday’s lower-than-expected Consumer Price Index (CPI) number, and Federal Reserve Chairman Jerome Powell’s testimony to Congress that recent economic data showed “some further progress” on inflation.
The latest CPI data released on Thursday supported Powell’s comments, with inflation in June falling to -0.1% against expectations of +0.1%. That brought annual inflation down to 3.0%, paving the way for Powell to begin easing restrictive policies.
According to the Chicago Board of Trade FedWatch tool, rate traders have raised the odds of a September cut from 68.1% on Thursday to 88.1% today.
Risky Assets Sell Amid Rising Expectations of Fed Rate Cut
The conventional narrative of macroeconomic drivers and risky asset behavior appears to have collapsed over the past 24 hours, as the increased likelihood of a Fed rate cut in September failed to spark a rally in risky assets.
“Despite the weak June CPI report, the Nasdaq fell and Bitcoin was depressed, while the Russell 2000 and real estate stocks rose. The media is describing this as a rotation from leaders to laggards, but whether this really represents a new emerging trend will be proven in the coming weeks,” analysts at Presto Research said in a market report Friday.
Despite Bitcoin’s continued downtrend, cryptocurrency investors can expect market volatility as former US President Donald Trump attends a Bitcoin conference in Nashville, Tennessee.
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