Recently, a series of economic data released by the United States showed strong momentum, especially the job market performance exceeded expectations. However, these optimistic data have complicated market sentiment. The Fed's expectations of interest rate cuts have been greatly weakened due to strong economic data, resulting in pressure on the U.S. stock and crypto markets .
Before Trump was officially sworn in, the market was engaged in the "Trump trade", but after Trump entered the White House, analysts at the StarEx exchange believe that institutions ' expectations for the future also vaguely reveal concerns , and the cryptocurrency market is somewhat "powerless to rise". The resilience of the US job market and the unexpected performance of overall economic data have made investors no longer optimistic about the Fed's policy shift. The market generally expects that the Fed may further extend the duration of its high-interest rate policy, and even does not rule out the possibility of another rate hike. This policy outlook puts pressure on the stock market, especially high-valuation technology stocks. Usually, during the interest rate cut cycle, the US Treasury yield should show a downward trend. However, recently, the 30 -year US Treasury yield once exceeded 5% , and the 10 -year yield rose to 4.81% , both of which hit a new high since November 2023. This trend reflects the market's concerns about the return of long-term inflation, and also shows that investors' confidence in the US fiscal situation has been shaken.
The inverted relationship between the U.S. long-term Treasury yield and the Federal Reserve's benchmark interest rate has returned to positive. This phenomenon is not the first, but its occurrence is often closely related to economic recession. From historical data, since 1960, every time the interest rate inversion has returned to positive, it has been accompanied by an economic recession, and four of them have triggered global financial crises, including the subprime mortgage crisis in 2008 and the new crown crisis in 2020. Whenever the interest rate inversion returns to positive, it means that the market expects the long-term economic growth potential to weaken and may face greater pressure in the short term. This phenomenon is seen as a precursor to recession, and the main reasons behind it include:
1. Declining economic growth expectations : Long-term yields are unlikely to rise, indicating that the market lacks confidence in future economic vitality; 2. Risk of liquidity tightening: As interest rates rise, the United States' huge debt burden becomes heavier, and long-term financing costs surge; 3. Concerns about the resurgence of inflation: 4. Although short-term inflation data such as PPI growth are lower than expected , the market remains cautious about the possibility of the Federal Reserve maintaining high interest rates to cope with repeated inflation.
Analysts at StarEx Exchange believe that the current high valuation of US stocks is mainly driven by the AI technology sector. With the rapid development of AI technology, major technology giants are scrambling to seize market share and have invested huge amounts of capital in R&D and infrastructure construction in the past two years. However, whether these capital expenditures can truly be converted into long-term profits remains a question , and institutions have to face the following problems.
1. Pressure from high valuations that cannot be sustained : After two years of AI fever, the time window has become longer. If these investments fail to bring significant profit growth, the market may lose patience with the high valuations of technology stocks, triggering a stock market adjustment.
2. Intensified industry competition : Competition in the AI field is becoming increasingly fierce , and the capital consumption war between giants may lead to diminishing returns and even put some companies in trouble. This involutionary industry trend has further exacerbated market anxiety.
3. The impact of high interest rates on capital-intensive industries : AI technology research and development is a capital - intensive field, and the current high interest rate environment will increase corporate financing costs and further compress profit margins.
4. Resistance to policy implementation: After Trump took office , the implementation of his policies is often accompanied by resistance. Once unexpected setbacks occur, it may have an impact on the capital market.
5. Hidden dangers of long-term high interest rates : The Fed’s current policy of maintaining a high interest rate of 5% has brought significant challenges. Although high interest rates are seen as a necessary means to control inflation, their negative impact is also obvious :
6. The debt burden has increased dramatically : The total U.S. national debt has exceeded 33 trillion U.S. dollars. The continued high interest rates mean that the government's interest expenses have increased significantly, which will further squeeze the fiscal budget. In a high interest rate environment, the financing costs of enterprises have increased significantly, capital expenditures have been suppressed, and the economic growth potential has been further weakened.
7. Asset price pressure : Asset prices such as stocks and real estate are generally under pressure in a high-interest rate environment, which may trigger a larger-scale market adjustment .
Analysts at StarEx Exchange believe that the current market is facing pressures that cannot be ignored, whether it is the abnormal fluctuations in U.S. bond yields or the potential risks of high valuations of U.S. stocks. From historical experience, after the interest rate inversion returns to positive, the recession window can be as short as a few months or as long as 1-2 years . In this cycle, the complexity and uncertainty of the U.S. economy are unprecedented.
It is understandable that institutions in the crypto industry are confused at this time. However, every adjustment in the market may be preparing for a bigger change.
