Cryptocurrencies and technology stocks remain vulnerable as the Fed Reserve decreases its nearly $9 trillion balance sheet. Leading banks from Europe to Canada plan to test global markets as they adopt a hawkish stance by US regulators on a mission to loosen the epidemic bond-purchasing passion.
According to popular comments by 687 participants on the recent MLIV Pulse study, that’s the primary anticipation by Wall Street & beyond, with the Fed starting quantitative tightening, trimming its asset balance.
The shift might mean a substantial danger to risk assets such as digital coins and tech equities, which flourished during the COVID-driven market craze before plummeting during 2022’s cross-asset catastrophe.
For now, the narrative of ultra-cheap cash appears over. Experts expect the balance sheet reduction by Fed to take more than one year, and more than two-thirds of study participants trust the 4-decade bond bullish market has ended.
These developments emerge against the possible harmful framework of the Federal Reserve hiking rates at the quickest pace to curb escalating inflation.
The latest market fluctuations have done less to discourage the United States central bank from keeping its pessimistic stance, with market players expecting another 0.5 rate increase on 15 June.
Federal Reserve began reducing its balance sheet (in June) by leaving assets to age at 47.5 billion paces every month without reinvesting before moving to $95 billion each month in September.
Morgan Stanley Wealth Management CEO Lisa Shalett told Bloomberg that capital quantity and quantity liquidity have been crucial, and the market will feel its withdrawal for an extended duration.
The MLIV study of at-risk products amid the QT phase comprised individuals from market strategists to retail investors. Only 7% cited mortgage-backed bonds, securities that dominated the 2008-2009 crisis, with about 50% picking crypto and tech.
Withdrawing cash from the system tightens financial situations, which limits economic growth. That can translate to value reductions in stocks as tech stocks depend on future earnings optimism. For now, the financial space seems ready for more struggle.
What are your views about the current market condition? Time to prepare for the worst while praying for the best? You can comment below.