The collective bottoming of multi-asset classes behind the scenes: The Federal Reserve's stance shifts, what is the future of risk assets?

An Unexpected “Triple Kill” Situation

The market has recently staged a multi-act drama. Amidst the dual blows of the Fed’s hawkish signals intensifying and doubts about tech stock valuations, the traditionally separate markets of gold, US stocks, and cryptocurrencies have rarely moved in sync to the downside. This is not a simple technical correction but a signal of investors’ expectations being re-priced.

According to the latest market data, Bitcoin has fallen from its high to around $94,050, with Ethereum also adjusting, with its 24-hour gain narrowing to 2.29%. In the traditional markets, the S&P 500 and Dow Jones indices both broke below their 50-day moving averages, while gold prices faced pressure and have been weakening for several consecutive days.

Chain Reaction of Expectation Reversal

The source of this adjustment can be attributed to the combined effects of two major factors:

The subtle shift in the Fed’s stance is the primary driver. Recent remarks from Federal Reserve officials lean hawkish, and market expectations for a 25 basis point rate cut in December have fallen below 43%. For risk assets that rely heavily on a low-interest-rate environment, this effectively cuts the support for their upward movement. Gold’s trend is similarly affected, as the shrinking rate cut expectations directly weaken gold’s appeal as an alternative yield asset.

Doubts about the valuation model of tech stocks have also intensified market panic. Investors are becoming wary of companies that rely on massive debt issuance to support capital expenditures—Amazon’s bond issuance being a case in point. As the enthusiasm for AI narratives begins to fade, the fragility of this business model is exposed.

Technical Signals Indicate Danger

From the charts, the current situation is more concerning than the surface data suggests.

All three major US stock indices—the S&P 500, Dow Jones, and Nasdaq—have broken below their 50-day moving averages, indicating a potential shift from an upward to a downward trend. Bitcoin’s technical pattern is even more alarming—the 50-day moving average has crossed below the 200-day moving average, forming a dreaded “death cross.”

Industry experts are also pessimistic about the outlook. John Roque, Chief Technical Analyst at 22V Research, predicts that the Nasdaq could fall by as much as 8%. Jeff Mei, CTO of BTSE, points out that with AI valuations being questioned and the outlook for rate cuts uncertain, further downside for Bitcoin is highly probable.

Gold Price Forecasts for Various Assets

Regarding Bitcoin: Quaglini from Hex Trust states that if the stock market continues to decline, Bitcoin could easily retest the $70,000 support level. This correction is far from over, and investors should prepare for deeper pullbacks.

Regarding gold: Gold’s trend will depend more on liquidity conditions. When investors urgently need cash due to stock losses, they tend to liquidate their gold holdings first. Michael Armbruster, co-founder of futures broker Altavest, believes that in the short term, gold may fluctuate in tandem with other risk assets rather than serving as a traditional safe haven.

Regarding US stocks: Under the dual pressure of interest rate expectations and corporate valuation concerns, the depth and duration of the US stock correction remain highly uncertain.

Defense Is Better Than Offense in the Current Environment

In the face of such market conditions, DoubleLine Capital CIO Jeffrey Gundlach offers prudent advice: considering that many asset prices are already highly overvalued, investors should allocate about 20% of their portfolios to cash to hedge against significant market pullbacks.

This is not a bearish outlook but a rational risk management approach. A liquidity-rich portfolio can maintain resilience during extreme volatility and react quickly when genuine opportunities arise. The uncertainty surrounding gold’s trend further underscores the importance of diversification and cash reserves.

In the short term, investors should closely monitor subsequent statements from Fed officials and guidance from tech companies’ earnings reports regarding capital expenditure plans. Only when these two key variables stabilize can the market possibly find a new equilibrium.