History shows that equities often deliver solid gains in the year following the start of such cycles, with the S&P 500 averaging around 14 per cent returns over 12 months based on past data from various cycles. Yet the initial month after the first cut tends to bring choppiness, as markets adjust to shifting monetary policy.
In this case, equities rallied strongly leading up to the cut, pushing the S&P 500 up 15 per cent in the past six months and a whopping 32 per cent from its yearly lows. I see this preemptive surge as a sign of market optimism, but it also raises flags for potential consolidation ahead.
Investors priced in these cuts long ago, so the real test comes from upcoming events like speeches from 10 FOMC governors and the PCE inflation report due on September 26. If inflation data surprises on the upside, volatility could spike, reminding everyone that even dovish Fed actions carry risks in an economy where growth projections and unemployment trends diverge sharply.
Fund managers’ bold bets on risk assets
Fund managers continue to lean heavily into risk assets, particularly equities, despite nagging worries about persistent inflation and a weakening US dollar. This positioning strikes me as bold, perhaps overly so, given the mixed signals from the broader economy. Many in the industry view artificial intelligence as a deflationary force that could counter current inflationary pressures, an idea that holds water when you consider how AI efficiencies might drive down costs in sectors like manufacturing and services.
Gold’s performance this year underscores these tensions, with prices surging 38 per cent year-to-date amid buoyant rate-cut expectations and geopolitical uncertainties. Research into recent gold price drivers points to factors like central bank buying, trade tensions, and lower interest rates making the metal more appealing as a hedge.
However, fund flows indicate much of this buying stems from speculation rather than genuine hedging, and professional asset managers maintain low exposure to gold and digital assets. In my view, this creates intriguing opportunities for savvy investors to buy on dips, especially as gold hit US$3685.30 per ounce recently. The under-allocation by institutions suggests room for further upside if economic headwinds intensify, but it also warns against chasing the rally without careful consideration.
Balancing strategy: Barbell approach and diversification
Strategic advice in this environment boils down to respecting the Fed’s direction without blindly following the herd. The central bank’s dovish stance supports companies with strong earnings growth, yet piling into mega-cap tech stocks at current valuations feels precarious. A barbell approach makes sense here, where you hold core positions in quality names, add selectively during pullbacks, and diversify into global themes and yield-focused plays.
Singapore’s yield stocks stand out, having outperformed the S&P 500 over both five- and ten-year periods, which bolsters the argument for regional diversification beyond US borders. I favour this strategy because it balances growth potential with income stability, particularly in a world where US-centric portfolios risk overexposure to domestic policy shifts.
With the Fed projecting more cuts on October 29 and December 12, lower rates could fuel corporate borrowing and expansion, but diverging economic indicators demand vigilance. Unemployment might tick up if growth slows more than expected, potentially pressuring equities despite the supportive policy backdrop.
Macro shifts and geopolitical influences
Turning to the broader macro picture, global risk sentiment holds firm thanks to the allure of additional rate cuts enhancing corporate earnings outlooks. The week ahead features the high-level General Debate at the 80th UN General Assembly starting Tuesday, with President Trump addressing the opening session and Fed Chair Powell discussing the economic outlook. These events could inject fresh narratives into markets, especially amid positive developments in US-China relations.
President Trump’s recent conversation with Chinese leadership led to a deal on the popular Chinese-owned social media app TikTok, allowing it to continue operations in the US under new controls, which eased some trade anxieties. Wall Street responded enthusiastically, with major indices hitting record highs on Friday, the Dow Jones up 0.37 per cent, S&P 500 up 0.49 per cent, and Nasdaq up 0.72 per cent.
Treasury yields edged higher, the 10-year at 4.127 per cent and the 2-year at 3.572 per cent, reflecting a mix of growth optimism and inflation watchfulness. The dollar index climbed 0.30 per cent to 97.64, while gold rose 1.1 per cent on rate-cut bets. Brent crude dipped 1.1 per cent to US$66.68 per barrel following EU sanctions on Russian oil vessels and buyers, highlighting ongoing energy market fragilities. Asian equities showed mixed results Friday and in early trading today, with US futures pointing to a lower open, suggesting caution amid these crosscurrents.
Bitcoin volatility and regulatory headwinds
Bitcoin’s recent dip adds another layer to the market mosaic, with the cryptocurrency falling 0.93 per cent to US$114,566 over the past 24 hours, lagging the broader crypto market’s 1.91 per cent decline. This underperformance stems from profit-taking after hitting recent highs, technical breakdowns near the US$115,400 resistance level, and regulatory uncertainties.
Drawing from similar patterns in September 2024 analyses, when Bitcoin traded around US$63,000 and faced consolidation phases, the current setup echoes familiar volatility drivers like leverage unwinds and momentum shifts. Over US$176 million in long positions were liquidated as prices tested US$115,000 support, amplifying the drop in a classic liquidity trap where open interest spiked 4.14 per cent to US$937 billion.
Traders piled in near resistance, only to face swift reversals, which I interpret as a healthy correction in an asset that has risen 81 per cent year-to-date. The failure to break above the 23.6 per cent Fibonacci retracement at US$115,400 triggered algorithmic selling, with the MACD histogram still positive at +265 but RSI hovering around 51-53, indicating waning momentum.
Bulls must secure a close above that level to reclaim initiative; otherwise, a breach of US$114,500, the 30-day simple moving average, could cascade toward US$110,000.
Regulatory developments weigh heavily on Bitcoin’s short-term path, presenting a neutral but noisy influence. The US Treasury’s commentary on the GENIUS Act, issued on September 20, emphasises stablecoin regulations requiring full reserves in liquid assets like Treasuries and technological capabilities for freezing assets, aiming to foster innovation while curbing risks. This act, signed into law earlier this year, mandates issuers to comply with federal laws, potentially stabilising the crypto ecosystem but introducing oversight that cools institutional enthusiasm.
Meanwhile, the EU’s MiCA regulation drives exchange consolidation, enforcing consumer protections, market integrity, and restrictions on stablecoin use as exchange mediums, which impacts global flows. Exchanges adapting to MiCA gain credibility and access to unified EU markets, but the compliance shifts have slowed inflows, with ETF volumes dipping and minor outflows from products like GBTC.
In my opinion, these headwinds represent growing pains for the sector; long-term clarity should prove bullish by attracting more institutional capital, yet the immediate uncertainty often halts rallies, as seen in past cycles.
Closing thoughts: Cautious optimism ahead
Overall, the market’s resilience amid the Fed’s pivot impresses me, but I remain cautious about overextended positions in tech and crypto. The historical precedent of positive equity returns post-rate cuts offers encouragement, yet the unique blend of geopolitical events like the UNGA, US-China thawing via the TikTok agreement, and persistent inflation worries calls for measured optimism. Gold’s speculative surge and Bitcoin’s technical wobbles serve as barometers for broader risk appetite, suggesting investors diversify thoughtfully.
The barbell strategy aligns with my view that quality growers paired with yield plays provide a sturdy foundation, especially as Singapore’s outperformance demonstrates the value of global exposure. With PCE data looming and more Fed cuts on the horizon, markets could consolidate, but the underlying dovish support tilts the scales toward gradual upside. Still, chasing crowds in mega-caps or digital assets without waiting for pullbacks risks unnecessary pain; patience often rewards in these environments.
As we head into the final quarter, keeping an eye on unemployment trends and corporate earnings will prove crucial, potentially defining whether this cycle mirrors the average 14 per cent gain or veers into choppier territory. The economy’s divergences remind us that while the Fed guides, real-world data ultimately steers the ship.
Source: https://e27.co/the-rate-cut-rally-earnings-gold-and-bitcoin-in-the-balance-20250922/
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
