Amid fears of a more severe crypto market crash than last week’s, when Bitcoin dropped over 3% in a single day, BlackRock, a leading asset management company and a Bitcoin ETF issuer, has cautioned investors that Fed rate cuts may not come as expected.
Following weak US jobs data released last Friday, the market responded with a sharp downtrend in Bitcoin’s price. This also reinforced the ongoing narrative of an impending broader economic recession. Now, the market expects a Fed rate cut, which could help it regain some strength.
However, this may not happen. In its weekly commentary, the BlackRock Investment Institute stated that Fed rate cuts might not come as anticipated.
“Even as inflation is falling toward the Fed’s target in the near term, higher inflation over the medium term will limit how far the Fed can cut rates, we believe. Growth concerns and cooling inflation have driven 10-year yields to 15-month lows, as investors have priced in more than 100 basis points of cuts by year-end and about 240 basis points of cuts over the next 12 months—implying a Fed response to a recession,” the note explained.
Commenting on what has been fueling market volatility, BlackRock mentioned, “Resurgent recession fears due to some softer economic data, pre-U.S. election jitters, and profit-taking as investors make room for new stock issues.”
In their note, BlackRock advised investors to watch AI stocks. They also noted that the earnings gap between “tech companies in the US and the rest of the market” is narrowing. This it said shows the overall strength of the US economy.
Dismissing the ‘impending broader economic recession’ narrative, BlackRock analysts said the “economy is more resilient than markets are pricing.”
Key Takeaways from BlackRock’s Weekly Commentary
For investors and crypto traders, BlackRock’s latest commentary offers insights for making strategic decisions in a volatile market.
On the positive side, BlackRock has not endorsed the narrative of a full-blown recession like the one seen in 2008. This means, in the medium term, you’re unlikely to witness a complete wipeout of the stock or digital assets market, as some analysts have suggested. BlackRock emphasizes the broader economic situation in the US, implicitly explaining why it differs from 2008.
Regarding US jobs data, BlackRock noted it’s not ideal but also not disastrous. “Job growth is slowing but remains far from the layoffs that typically signal a recession,” it said.
BlackRock urges investors to focus on the broader market and prioritize AI-led sectors, which could experience earnings growth in the near term.
