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5 Rollercoaster Consequences for Stocks, Bonds and Cryptocurrencies


According to information published by Business Insider, last Wednesday the Federal Reserve System (Fed) temporarily suspended interest rate hikes. However, over the past 15 months, their efforts to tighten monetary policy have resulted in wild price fluctuations in stocks, bonds and cryptocurrencies that can be compared to a rollercoaster ride.


There are five graphs that illustrate this process:


1. The first chart shows that from March 16, 2022, the Fed's benchmark interest rate began to rise for the first time in more than 2 years in an attempt to contain rising inflation, which has reached its highest level in the last 40 years. Over the next year and 3 months, the Fed raised the rate 10 times in a row from almost 0 to more than 5%, the fastest rate hike cycle in the last 40 years. After that, a pause was made, and the increase was temporarily suspended.


2. The second chart reflects the chaos in the stock market as a result of the Fed's efforts to reduce inflation. Usually, when interest rates rise, stocks decline because investors can earn higher returns by investing their money in savings accounts rather than company stocks. The S&P 500, Nasdaq Composite and Dow Jones Industrial Average declined, and the Nasdaq even fell more than 20% into a bear market. However, after hitting a low, they began to recover, based on expectations of a rate cut, as well as the popularity of ChatGPT.


3. The third chart shows the changes in the stock market after the Fed's rate hike. Major U.S. indices are currently trading close to March 2022 levels, but the past 15 months have seen significant equity market losses, with regional lenders plummeting in particular, and the collapse of Silicon Valley Bank led to an outflow of capital from small and medium-sized banks in the U.S. . First Republic fell to zero before being rescued by JPMorgan Chase on May 1, and PacWest and Western Alliance lost more than half of their market capitalization.


4. The fourth graph shows a sharp increase in bond yields in parallel with the change in the value of shares of regional banks after an increase in interest rates. As interest rates rise, bond prices decline because potential buyers can earn higher returns by putting their money in banks. It happened in September when global bonds went into a bear market for the first time in years. Yields on 2-year and 10-year bonds, reflecting lower prices, have risen by about 200 basis points since March 2022.


5. The fifth chart shows a sharp sell-off of cryptocurrencies as a result of a rate hike. Bitcoin and Ethereum have fallen heavily as the cost of loans rises, leaving investors with less money to invest in risky assets.

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Forex Award | World Forex Award | Forex
Forex Award | World Forex Award | Forex
Forex Award | World Forex Award | Forex
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