The newly released economic data from the United States in July dispelled market concerns, and the market is currently betting on an astonishing 100% probability of a rate cut in September; U.S. stocks are switching styles as expected, with large-cap technology stocks breaking up and small-cap stocks and non-tech sectors ushering in spring; the crypto market was swept by emotions in July, but has now stabilized; Ethereum spot ETF was listed for trading, and Grayscale's selling pressure temporarily put pressure on prices, but the selling speed was fast and the pressure may not last too long.
On July 25, the United States announced that its GDP in the second quarter of 2024 grew by 2.8% year-on-year, higher than the expected 2.0% (1.4% in the first quarter). The PCE price index grew by 2.6% in the second quarter, lower than the 3.4% in the first quarter. The core PCE price index, which excludes food and energy prices and is the most important inflation indicator of the Federal Reserve, grew by 2.9%, also lower than the previous value of 3.7%. However, the market does not seem to buy this data. On the day the data was released, the U.S. stock market was shaken, from a high opening to a sharp drop, and then pulled up and fell again. The bulls and bears fought fiercely throughout the day, and the market could not reach a consensus.
In fact, quite a number of investors believe that the economic data given by relevant US institutions are "not true", which can be seen from the revision of non-farm data - the US Department of Labor announced at the beginning of the month that the non-farm data for this month was 206,000 (expected to be 190,000), but at the same time, the number of new non-farm jobs in April was significantly revised down from 165,000 to 108,000, and the number of new non-farm jobs in May was significantly revised down from 272,000 to 218,000. After the revision, the total number of new jobs in April and May decreased by 111,000 compared with before the revision. According to statistics, the number of jobs has been revised down in 4 of the past 5 months. This practice has obviously caused various speculations and even suspicions in the market, believing that economic data is just a tool for the US government to manipulate policies.
The long-term interest rate hike has already had a significant impact on the US economy. Currently, the market is speculating that many economic data are "creating momentum" by the Federal Reserve and relevant departments of the US government to create the rationality of interest rate cuts. Of course, the effect is also very good: the current FedWatch Tool shows that the probability of maintaining the current interest rate level in September is 0, in other words, the probability of starting a rate cut in September is 100%!
This extreme situation can only mean that the market has begun to adjust the pricing of all assets in line with expectations. The overall US 10-year Treasury bond interest rate has entered a downward channel, and funds have begun to shift from the risk aversion of the interest rate hike cycle to the appropriate pricing of various assets in the interest rate cut cycle.
Let's first look at the trend change chart of Russell 2000 Small Cap (RUT) and Nasdaq Composite (IXIC) in the past month. These two indexes are very interesting: on July 11, when IXIC peaked, RUT took off.
July 11 was the day when the United States released the latest CPI data. The market keenly captured the signal of easing inflation. Everyone agreed that interest rates could be cut in September, so funds quickly withdrew from large-cap stocks, the group collapsed, and began to flow into small-cap stocks. WealthBee pointed out in its May monthly report that during the interest rate hike cycle, funds flowed to leading companies in the AI industry, and with the arrival of the interest rate cut cycle, the market's risk preference will change first, and then the US stock market may usher in a style change. During the interest rate cut cycle, the abundance of liquidity will increase the "speculativeness" of the market. Compared with large-cap stocks, small-cap stocks have higher volatility and are more suitable for speculation. Therefore, this "big cut small" style change is also reasonable.
In addition, among the current "Magnificent 7" of US stocks - Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Tesla (TSL), Nvidia (NVDA), Amazon (AMZN), and Meta Platforms (META), Tesla and Alphabet have already announced their second-quarter financial reports. Tesla's operating profit in the second quarter was $1.605 billion, down 33% year-on-year, and the market expected $1.81 billion; adjusted earnings per share were $0.52, lower than the market expectation of $0.6. Google's parent company Alphabet's financial report is relatively better, with total revenue of $84.742 billion in the second quarter, up 14% from $74.604 billion in the same period last year; net profit was $23.619 billion, up 29% from $18.368 billion in the same period last year; diluted earnings per share were $1.89, up from $1.44 in the same period last year. These data exceeded market expectations, but YouTube advertising and revenue failed to meet expectations. The overall situation of these two companies is not very ideal, which has also intensified the market's suspicion about Magnificent 7's overall profitability. The market is also waiting for Apple's second quarter report on August 1.
In the AI narrative, if only Nvidia benefits, and the other six companies in the Magnificent 7 fail to maintain sustained performance, it may be difficult for them to support the market alone. Combined with the style switch, the US stock market may usher in more corrections. Observing the subsequent performance of Apple, Microsoft and Nvidia, if they can exceed expectations, combined with the overall liquidity brought by the interest rate cut, the beta returns of the US stock market may continue.
In July, due to the compensation of the Mt. Gox case, the selling pressure of the German government and Trump's speech at BitCoin 2024, the market brought huge fluctuations - the price of Bitcoin fell below $54,000 at its lowest, then broke through $70,000, and then fell back to around $66,000 at the end of the month. Recently, the Bitcoin Volatility Index has reached a relatively high peak level, which shows that the market is currently in a stage where both long and short sides are evenly matched.
The Mt.Gox incident had been anticipated by the market, and the German government's selling pressure was not very large (about 1,000 coins per day on average). In theory, it would not have caused a major impact on the secondary market. Therefore, the sharp drop at the beginning of the month was more of an emotional sell-off.
As a well-known "crypto-friendly president", Trump also emphasized in his speech at BitCoin 2024 in late July that "the United States will be made the world's Bitcoin center", and even said that "not a single Bitcoin will be sold" and "the United States will establish a national Bitcoin reserve", which seems to want to inject new boosters into the market. During his speech, the price of Bitcoin first fell sharply by $1,200, falling below $67,000, and then quickly rebounded, eventually soaring to a high of $69,000. But after Trump's speech, the price of Bitcoin fell again, reflecting the market's disagreement on the feasibility of Trump's remarks and their long-term market impact. Perhaps the market has also overestimated the probability of Trump's election as president. At present, Harris, the Republican rival, is not weak. She also has a high approval rating with multiple political correctness buffs, and Harris's current preference for cryptocurrencies is still vague.
While Bitcoin's volatility has sparked heated discussions, the Ethereum market has also reached a milestone this month: On July 23rd, Eastern Time, the Ethereum spot ETF began trading on the 10th anniversary of the first public sale of Ethereum. However, the market performance was quite flat: Farside Investors data showed that the net inflow on the first day of trading exceeded US$100 million, but there was a continuous net outflow in the following days.
From the table, we can see that Grayscale's products continue to have a large outflow, which is exactly the same as the scene when the Bitcoin spot ETF was launched before: Grayscale also sold a large amount of Bitcoin when the Bitcoin spot ETF was launched. Grayscale will convert the existing Grayscale Ethereum Trust ETHE into an ETF, and the previous fee rate is still 2.5%. The high fee rate is far higher than that of other competitors, which will inevitably lead to a large number of investors selling, either to lock in profits or to buy competitors' products.
However, there is no need to worry too much about this situation. At present, the selling speed of Grayscale ETFE is very fast. When ETHE was listed, Grayscale held about 2.63 million Ethereum, equivalent to about 9 billion US dollars. As of the 26th, as much as 1.5 billion US dollars had flowed out. Such an outflow speed will quickly reduce the selling pressure. The pain is only temporary. The speed of launching Ethereum spot ETF has proved that crypto assets are being accepted by traditional markets at a faster rate than expected, and the future of crypto assets must be bright.
Overall, the market in July was almost dominated by emotions. Perhaps the crypto market currently lacks a new bull market narrative, coupled with the decoupling from the US stock market, and is in a relatively chaotic period as a whole, making it more susceptible to emotions.
However, at present, the market has fully digested the sentiment and is showing a spiral upward recovery trend. The price of Bitcoin is moving in the right direction. Bitcoin spot ETFs are also continuing to have net inflows, which reflects that the market panic has not continued, indicating the arrival of a larger market in the future.
Despite the uncertainty in the macro economy and traditional financial markets, the crypto asset market has shown its independence and resilience, and is expected to play an increasingly important role in diversified investment portfolios, providing investors with new growth opportunities. This month, the price of Bitcoin has gone through a "roller coaster" trend, which is more emotional, and the long-term trend represented by Bitcoin spot ETFs remains unchanged. The launch of Ethereum spot ETFs has also brought new vitality and stability to the market. The future of the crypto market is full of challenges, but also full of hope.
