Risk Assets Endure Ongoing Setbacks: When Will They Finally Bounce Back?

This week, a series of economic data releases and comments from Federal Reserve officials have dampened expectations for interest rate cuts, causing the 10-year U.S. Treasury yield to soar to approximately 4.7%. Major U.S. indices remain under pressure, continuing a consolidation phase that began in December, as investors appear to lack a clear direction. On Wednesday, Bitcoin experienced a sharp decline, nearing the $100,000 mark, and after three consecutive days of losses, it briefly dropped to $91,000 on Thursday. Risk assets are facing persistent challenges—when will they find relief?

Jordan Rizzuto, Chief Investment Officer and Managing Partner at Partners, stated, "In an environment where stocks and bonds are positively correlated, the market's fear of further increases in U.S. bond yields poses a significant threat to equities." U.S. equities have experienced volatility in the past month, with much of the weakness stemming from the Federal Reserve's December meeting, during which the Fed signaled its intention to slow the pace of interest rate cuts in 2025.

Source： MacroMicro

For U.S. stocks to strengthen further, they will require support from Treasury yields, and tonight's nonfarm payroll data could potentially surprise the market. Twenty-five institutions have issued forecasts for the U.S. unemployment rate for December, with the majority predicting it will hold steady at 4.2%, including firms like Societe Generale, Barclays, and Bank of America. However, economists at Citigroup caution that the nonfarm data may overstate actual job growth, anticipating an increase in the unemployment rate to 4.4%. A surprising uptick in unemployment could serve as a positive signal for the market, suggesting that the Fed might reconsider its timeline for rate cuts. This could also lead to a correction in overly aggressive rate cut expectations, causing a decline in Treasury yields and alleviating pressure on the U.S. stock market.

Goldman Sachs believes that the Trump 2.0 policy will be generally beneficial for the U.S. stock market
As uncertainty surrounding Trump's administration gradually dissipates, market volatility is expected to decrease. Economist David Mericle at Goldman Sachs suggests that Trump may rapidly implement previously proposed tariffs and immigration policies, which could negatively affect U.S. GDP. However, subsequent domestic tax cuts and other initiatives are likely to provide a boost to economic growth. While the Trump 2.0 policy may be characterized as "noisy and uneven," it is fundamentally pro-growth, pro-business, and pro-market, ultimately benefiting the U.S. stock market.

The recent downturn in BTC is primarily attributed to uncertainty surrounding the Federal Reserve's interest rate cuts, as investors adopt a more cautious stance following Trump's election as president. Markus Thielen, founder of 10x Research, noted that the decisions made by the Federal Reserve continue to represent the "primary risk" facing Bitcoin. Additionally, developments from the U.S. Department of Justice and comments from Elon Musk have exerted short-term pressure on market sentiment. A recent court ruling from the Northern District of California has granted the U.S. Department of Justice approval to sell 69,370 bitcoins seized from the illicit dark web marketplace "Silk Road." At a projected price of $94,000 per bitcoin, this potential sell-off could total nearly $6.5 billion. Although the ruling is dated December 30, 2024, it has undeniably influenced market sentiment in the short term.

Although Trump painted an optimistic picture for the crypto industry during his campaign, promising to position the U.S. as the global cryptocurrency capital, the clarity of his actions post-inauguration remains uncertain. It is undeniable that BTC is in a favorable policy environment. After Trump's official inauguration, whether his depicted ideal crypto nation can spark a new wave of cryptocurrency or whether the promised new crypto policies can be quickly implemented, will be enough to form a new round of bullish sentiment, continuing to drive Bitcoin towards higher prices.