Originally published on: September 17, 2024
In the past 12 hours, Bitcoin has seen a rapid recovery, surpassing the $61,000 mark as the S&P 500 hit a new all-time high. This surge comes just in time for the upcoming Federal Open Market Committee (FOMC) meeting, where rate cut announcements are expected to impact both the US stock market and the cryptocurrency industry.
With a growing correlation between Bitcoin and major US stocks, investors are closely watching for clues on how historical performance post-rate cuts may influence the market. The S&P 500, a key indicator of the US market trend, recently reached a record high of 5670, signaling optimism among traders who are anticipating a 0.5% rate cut.
However, past rate cuts have often led to short-term dips in the S&P 500 index. Historical data shows that the index’s return on investment has been negative 60% of the time following rate cuts by the US Federal Reserve. Given the historical patterns, a cautious 0.25% cut may trigger a sharper pullback if the market is already pricing in a 0.5% reduction.
The close relationship between Bitcoin and the S&P 500 is evident in their correlation coefficient, which currently stands at 0.88. As both assets move in tandem, a decline in the stock market post-rate cut could sway Bitcoin in the same direction. Analysts suggest that if a correction occurs, Bitcoin could target the $54,000 range, with a possibility of dipping even lower to $48,880.
Despite these short-term projections, the risk of a recession in the US remains low as economic indicators show signs of improvement. If the economy avoids a recession, the bullish momentum in the stock market is likely to continue, benefitting risk-on assets like Bitcoin in the fourth quarter.
While this article does not offer investment advice, it highlights the potential impact of rate cuts on Bitcoin’s price and the stock market. Investors are encouraged to conduct their own research and exercise caution when making trading decisions. Stay informed with critical insights by subscribing to the Markets Outlook newsletter for exclusive market analysis every Monday.
