"Recalibration" of interest rate cuts leads to a market rally, how should assets be allocated next?

Author: 4E Exchange

On Thursday Eastern Time, U.S. stocks opened higher and continued to rise, with all three major indices closing up, and the crypto market also experienced a broad rally. The previous day, the Federal Reserve cut interest rates by 50 basis points and described this rate cut as a "recalibration" of its monetary policy, reigniting hopes that the U.S. could avoid a recession.

Delayed Effect of Rate Cut Benefits, U.S. Stocks, Crypto, Gold, and Oil All Rise

On Thursday, U.S. stocks opened high and continued to rise, with all three major indices closing up. The Dow Jones Industrial Average rose by 1.26%, breaking the 42,000-point mark for the first time, the S&P 500 index increased by 1.70%, reaching a historic high, and the Nasdaq rose by 2.51%. The crypto market followed the upward trend of U.S. stocks, with Bitcoin rising by 2.03% and Ethereum by 2.63% as of the time of writing. Regarding the U.S. dollar index, investors began to consider more rate cuts from the Federal Reserve, leading to an initial rise followed by a drop, ultimately closing down by 0.3%; gold surged by $27.31, an increase of 1.07%, stimulated by a weaker dollar and geopolitical tensions; WTI crude oil closed up by 2.85%.

Easing Concerns About Economic Recession

The Federal Reserve cut rates by 50 basis points on Wednesday and expressed greater confidence in achieving its inflation targets. Powell repeatedly mentioned the term "recalibration" in his speech that day and successfully conveyed a reasonable perspective to investors that this significant rate cut is an adjustment in the cycle rather than a precursor to an economic recession. Powell claimed that the U.S. economy remains strong, with no signs of recession.

Although there was some volatility following the Fed's rate cut, the decision to cut rates by 50 basis points was welcomed by investors. This move is seen as a bold but necessary measure. Some analysts noted that Powell's performance at the press conference was reassuring, enhancing hopes that the Fed could successfully lower inflation to its 2% target while avoiding an economic downturn. Therefore, the market reacted positively today, and the bullish trend remains intact, without triggering panic signals similar to the 2008 financial crisis.

How to Allocate Assets Going Forward?

Since the global financial crisis, the Federal Reserve has undoubtedly been a "staunch ally" of bullish investors, stabilizing financial market volatility through its communication and driving asset prices higher. Historically, when the Federal Reserve cuts rates and the U.S. economy does not enter a recession, the stock market typically performs well. Data shows that over the decades, during non-recession periods, the S&P 500 index has averaged a 14% increase within six months of entering a rate-cutting cycle.

However, some analysts believe that the current economy is relatively weak, and sensitivity to interest rate changes has decreased compared to the past. Additionally, the stock market has already risen significantly ahead of the anticipated rate cuts, so unless there are worse economic news, the room for further stock market increases is limited.

This rate cut and the resulting market reaction once again demonstrate the complexity and unpredictability of the market. Although macroeconomic data and policy expectations play a key role in market trends, investor behavior, market sentiment, and external uncertainties also significantly impact market volatility. Therefore, investors need to remain cautious and diversify their investment strategies to mitigate risks. For example, investors can achieve diversified allocation through a one-stop comprehensive trading platform like eeee.com, covering various risk levels of assets such as U.S. stocks, indices, foreign exchange, and commodities like gold.

As an official partner of the Argentine national team, the 4E platform offers over 600 asset trading pairs and supports long and short trading with leverage of up to 1,000 times. Users only need to hold USDT to trade anytime via mobile or PC. In addition, 4E has launched several financial products, with the annualized yield for flexible products at 2.5%, available for withdrawal at any time, and the annualized yield for a 30-day fixed product reaching 5.5%. Through reasonable asset allocation, investors can effectively balance risk and return, achieving more stable investment returns amid market fluctuations. Furthermore, the 4E platform has set up a $100 million risk protection fund, adding another layer of security for users' funds, helping investors trade with peace of mind.

4E APP Download: https://download.eeeedex.com/