Cryptocurrency markets have been volatile lately, with confusing signals surrounding the Fed's rate cut trajectory. The recent surge in the U.S. stock market suggests that purchasing power may remain strong among investors, further fueling similar concerns. Amid the uncertainty, the belief that interest rates will remain stable for the long term is reinforced.
US stocks soar. Nvidia's earnings show strength in the market
According to a report from Reuters, the S&P 500 index rose to a record high this year, thanks in part to strong corporate performance. The rise has diverted attention from the Fed's difficult efforts to lower interest rates. Some investors think monetary policy will take center stage once earnings season is over. S&P 500 companies are on track for a 10% year-over-year increase in fourth-quarter profits, the first since the first quarter of 2022, even after the majority of companies reported, according to LSEG IBES statistics. This will be the biggest increase. The rise in stock prices also increased sentiment towards assets such as cryptocurrencies.
The main indicator of stock market strength was Nvidia's earnings. Nvidia reported adjusted earnings per share (EPS) of $5.16 for the quarter on revenue of $22.1 billion. Analysts had expected sales of $20.4 billion and earnings per share of $4.60. This is a significant increase over Nvidia's $6.1 billion, or $0.88 per share, in the same period last year. The fact that Nvidia generated $27 billion in revenue through its 2022 fiscal year further highlighted the company's performance.
Data offers clues as Fed uncertainty looms
US benchmark data confirmed predictions that the Fed may hold off on cutting interest rates for some time. Since the beginning of the year, investors have been making predictions about the pace and magnitude of rate cuts the Fed might make. Nevertheless, market participants are already pricing in a rate cut in June or July given the better-than-expected numbers. This revised plan is in line with advance predictions of interest rate cuts in March and May. With the current surge in stock prices, there are continuing signs that purchasing power may continue to rise as well.
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Cryptocurrency market cautious due to larger economic backdrop
Investors have historically relied heavily on the Federal Reserve's interest rate choices as a guide to valuing assets. Government bonds often decline in value due to falling interest rates, making assets such as cryptocurrencies more attractive. The crypto market is bracing for volatility as investors are likely to stick with traditional assets for a while given the Fed's decision to postpone interest rate cuts.
However, on the positive side, investor demand remains high due to the strong economy. When the economy is strong, purchasing power is usually constant and riskier investments are favored. In that case, the crypto market is likely to continue rising at its current pace, regardless of the Fed's decision.
