The markets have rallied on the expectations of a Fed pivot, but McGlone expresses skepticism.
Bloomberg Intelligence Senior Macro Strategist Mike McGlone has noted that a stock market dump might be necessary to pivot the Fed toward economic easing.
McGlone said this in notes attached to a tweet yesterday. According to McGlone, Bitcoin and equity markets have rallied this year on the expectations of Fed easing. However, in the face of strong February inflation data, McGlone does not expect this easing to start soon, noting that a sharp drop in the stock markets could be a necessary catalyst.
Trend vs. Trade – #Bitcoin vs. Bear Market, Fed:
Market expectations for the #FederalReserve to pivot toward easing are often necessary for a sustained recovery in risk assets, but a lower plateau may be essential for the flip. pic.twitter.com/GSiU43P1Fi
— Mike McGlone (@mikemcglone11) February 21, 2023
It is worth noting that a stock market crash could give the Fed pause for thought, triggering recession concerns.
The Fed fund rate is presently around 4.75%, following the 0.25% increase at the beginning of the month. However, officials maintain that the Fed must take this benchmark beyond 5% to bring inflation to the 2% target level. This indicates at least a couple more rate hikes, as highlighted by Fed Chair Jerome Powell.
As highlighted in a previous report, Michael Burry, famous for predicting the housing market crash years in advance, has predicted an imminent stock market crash triggered by high-interest rates. Burry says the crash will be similar to the dot com bubble.
For context, Fed rate hikes increase interest rates across the board, which makes investors less willing to take credit for investments. Consequently, it creates a risk-averse environment, leading to reduced spending and investment and increased saving.
It will be interesting to see how Bitcoin reacts in this situation, as it has often moved in tandem with the stock market. It is worth noting that Bitcoin’s correlation with the S&P 500 remains high at about 0.76 on Feb. 17. “Rich Dad Poor Dad” Author Robert Kiyosaki, regardless of this, continues to tap Bitcoin as a store of value, urging people to move investments and savings into Bitcoin, gold, and silver.
As reported yesterday, McGlone has warned that Bitcoin’s latest bounce to resistance at $25k favors shorts in the short term. Notably, this already appears to be playing out as the asset has broken out of the ascending triangle chart pattern identified by Duo Nine, a pseudonymous seasoned technical analyst, to the downside. When writing, it is trading just above the $24k price point, down 3.32% in the last 24 hours.
The Federal Open Market Committee minutes are scheduled for release later today. Consequently, we could see high volatility in the markets today depending on how close the Fed was to a 0.5% rate hike decision.