Wednesday's Markets Update (October 25, 2023)

26 Oct 2023 by rate3

On Wednesday, new home sales surged, and the Nasdaq hit its lowest levels since June, as investors returned to concerns about interest rate hikes and weighed mixed earnings against rising yields. Alphabet sank 9.5% due to weak cloud revenue, while Microsoft surged 3.1% on strong earnings. Bitcoin remained under USD 35K on lowering volumes, while Ethereum, at under 1.8K, showed a correction pattern on an hourly graph. Other news: A renowned crypto forensics company reported that only USD 21K was raised by Hamas in crypto donations.

Details

New home sales surged in September to their highest level in 20 months, driven by limited existing home supply. Sales increased in all regions and median and average prices rose from a year ago.

Comment

The decoupling of Fed rate hike policies from the market and the broader economic conditions can occur for several reasons. Here's an explanation of how this might happen:

Market Expectations and Forward Guidance: The Federal Reserve often provides forward guidance about its interest rate policies. If the Fed signals that it intends to raise rates gradually and in response to strong economic fundamentals, the market may already price in these changes. So, as long as the rate hikes align with the expected trajectory, the market may continue to perform well.

Alternative Sources of Financing: One important reason for the decoupling, disregarded by most main-stream analysts, could be the increasing diversity of financing sources. In today's financial landscape, there are numerous options beyond traditional banks and large investment institutions. For example, companies can raise capital through private equity, venture capital, crowdfunding, or direct lending. Additionally, the proliferation of FinTech platforms and peer-to-peer lending has created alternative channels for borrowing and investing that are less affected by Fed rate policies.

Global Economic Factors: The decoupling can also be influenced by global economic factors. If other major economies are also performing well and have their own independent monetary policies, it can mitigate the impact of Fed rate hikes on global markets.

Market Psychology and Sentiment: Investor sentiment and psychology play a significant role in market behavior. If investors believe that the Fed's rate hikes are a sign of confidence in the economy and a necessary step to prevent overheating, they may perceive it as a positive signal rather than a negative one.

Investor Adaptation: Market participants may adapt to higher interest rates by shifting their portfolios towards assets that are less sensitive to interest rate changes. For example, they may invest in sectors that tend to perform well during periods of rising rates, such as financials and energy.

Crypto

Crypto forensics company Elliptic has disputed claims about the scale of fundraising by Hamas using digital currencies, stating that while the group solicited bitcoin donations in 2019, it stopped all public-facing crypto fundraising in April due to safety concerns (hilarious!). Elliptic's blog post reveals that only USD 21K in fresh crypto donations have arrived since recent attacks in Israel on October 7, with most of it already frozen. Elliptic asserts that the amounts raised via crypto donations remain small compared to other funding sources, and no public crypto fundraising campaign by a terrorist group has received significant levels of donations relative to other sources.