For Bank of America says summer rally is over as crypto-currencies and stocks fall ahead of Fed rate hike this week

Last week’s drop was one of the worst weeks in more than three months as analysts believe a major Fed rate hike is expected this week. Analysts at Bank of America believe that the U.S. Federal Reserve “still has work to do” and that an aggressive central bank could be “anathema to stocks that have benefited from low rates and disinflation.

Crypto, precious metals, stocks show volatility ahead of Fed rate hike – The Analyst Plan B Says that bitcoin and the S&P 500 are correlated but are “completely different worlds“.

Bank of America market analysts said in a note late last week. Global assets are off to a rocky start Monday. Wall Street’s four major stock indexes started the day lower after a week of tough trading last week. Benchmark stocks experienced a slight rebound, highlighting the following extreme market volatility and uncertainty.

Analysts at Bank of America expect the S&P 500 to lose another 8% this year, and they further noted that the “summer rally is over.“On Monday, digital currency markets slid 1.61% over the past 24 hours, and the crypto economy now sits just above the $900 billion mark at $933.17 billion. Bitcoin lost 1.67% and ethereum lost 1.79% against the U.S. dollar in the last 24 hours.

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Precious metals like gold and silver also saw losses on Monday, with gold losing 0.12% and silver plunging 0.74% against the greenback. Bitcoin markets have been extremely correlated with U.S. stocks, but some analysts believe bitcoin is a animal very different.

“The [Bitcoin] and the S&P 500 are correlated“, analyst Plan B tweeted Monday. “However, during the same period, the S&P increased from ~$1K to ~$4K, [bitcoin] jumped from ~$10 to ~$20K. 4x versus 2000x … completely different worlds. Short term moves are noise, long term trends are the signal.

Bank of America strategist says summer rally is over as crypto-currencies and stocks fall ahead of Fed rate hike this week.
Chart shared by Plan B on September 19, 2022.

Bank of America strategists:”The Fed still has work to do“- Greenback climbs, 10-year Treasuries hit 11-year high.

Meanwhile, economists and analysts suspect the U.S. Federal Reserve will raise the target federal funds rate by 75 basis points this week. Bank of America’s Subramanian said, “the Fed still has work to do“and that lessons learned from more than four decades ago can teach us a lot about fighting inflation.

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A hawkish Fed may be anathema to stocks that have benefited from low rates and disinflation (i.e., most of the S&P 500), but the lessons of the 1970s tell us that premature easing could lead to a new wave of inflation – and that short-term market volatility could be a lower price to pay“, the Bank of America note explains. Subramanian’s opinion follows a report that Bank of America economists revealed in mid-July.

At the time, the bank’s economists stated that they had previously expected a “growth recession“, but the summer forecast suggested a “slight recession in the U.S. economy this year.“On Monday, market analyst Sven Henrich quoted Fed Chairman Jerome Powell’s statement at a press conference last June, when Powell said:”Clearly, today’s 75 basis point (bp) increase is unusually large, and I do not expect moves of this size to be common.“Henrich then mocked the Fed chairman by noting that the central bank is proceeding to execute the third 75 bp rate hike in a row.

While nearly every asset class shows a strong link to inflationary pressures and Fed monetary policy, the U.S. dollar has continued to soar against other fiat currencies. The U.S. Dollar Monetary Index (DYX) touched 109.756 Monday afternoon (ET) and the euro reached parity with the greenback once again. A single Japanese yen is equivalent to $0.0070 per yen, and 10-year U.S. Treasuries hit an 11-year high of 3.518% on Sept. 19.

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