Gold Dives, Oil Plunges: Fed's New Move Batters US Stocks, Nasdaq Down 2.55%
**Preface**
The global economy seems to be heading towards a downturn once again, with the United States arguably being the primary culprit. The U.S. stock market has always been a barometer for the global financial market, and its trends are influenced by a multitude of factors. Undoubtedly, one of the key factors is the policy adjustments made by the Federal Reserve.
Recently, the Federal Reserve has unleashed a significant move, which has directly led to a substantial hit to the U.S. stock market, with the Nasdaq Composite Index plummeting by 2.55%. Gold and oil prices have also plummeted dramatically!
Why has this situation arisen? What exactly is the significant move by the Federal Reserve? Will it have an impact on our country?
**U.S. Stock Market Indices Close Lower Across the Board**
In 2023, the Federal Reserve raised interest rates multiple times to combat inflationary pressures. However, by the end of the year, the market anticipated that the Federal Reserve would halt interest rate hikes and possibly lower rates, which propelled a stock market rebound.
Nevertheless, the Federal Reserve did not lower interest rates, but the market still widely believed that a rate cut would occur, providing support for the stock market.
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At that time, the rate of inflation had somewhat decreased, and there was a debate in the market about the trajectory of inflation. Some believed that inflation would drop rapidly.
However, inflation proved to be more persistent than expected, sparking concerns about the impact of sustained inflation on the Federal Reserve's interest rate policies. The slowdown in inflation provided favorable conditions for pausing interest rate hikes and supporting the stock market.In addition to this, corporate profits have seen a significant increase, and even with rising input costs, companies have been able to expand their profit margins by raising prices. The strong performance of artificial intelligence and technology stocks has also driven the stock market upwards.
The Russian invasion of Ukraine and conflicts in the Middle East may cause potential disruptions to the market. These events have increased market uncertainty but have also sparked investor interest in new technologies and innovative computing technologies.
As we enter 2024, the shift in monetary policy has a significant impact on market risk sentiment and valuations. Although an economic slowdown may have a negative impact on corporate profits and housing purchasing power, it is still uncertain to what extent the wealth effect can continue.
Technology stocks performed well in 2023, especially those related to artificial intelligence, such as Nvidia and Microsoft, which saw significant increases in their stock prices. This trend is expected to continue to be the main theme of U.S. stock investment in 2024.
The volatility of global markets and the differences in monetary policies of various countries have also affected the U.S. stock market. Concerns triggered by the European banking crisis, as well as changes in China's economic situation, have impacted global stock markets.
On September 6th, the Nasdaq Composite Index fell by 2.55%, marking the largest single-week decline since January 2022. This downward trend was further confirmed on the same day, with the Nasdaq Composite closing down 436.83 points, a 2.55% drop, at 16,690.83 points.
In addition, the prices of gold and crude oil have also plummeted. This is related to the U.S. CPI increase in August exceeding expectations, with the market worrying that the Federal Reserve may adopt more aggressive interest rate hikes to curb inflation, leading to a significant decline in these asset prices.
Specifically, the decline in gold and crude oil prices reflects the market's pessimistic expectations for future economic prospects and its reaction to the tightening of the Federal Reserve's monetary policy.
【Gold and Crude Oil Prices Plunge！】
This year, the prices of West Texas Intermediate (WTI) and Brent crude oil have fallen. WTI crude oil has broken below the $80 per barrel threshold, while Brent crude oil has also dropped to $84.30 per barrel.The price of spot gold has also started to decline. Reasons for the significant drop in gold prices include the increasing demand for profit-taking in the market, the easing of geopolitical tensions, and uncertainties surrounding the Federal Reserve's interest rate cut expectations. The decline in gold prices is also attributed to strong U.S. economic data, the impact of Federal Reserve rate hike expectations, the withdrawal of gold ETFs, and a weakening of support for safe-haven sentiment due to a reduction in geopolitical conflicts.
According to the World Bank's forecast, the global economic growth rate will slow down for the third consecutive year in 2024, dropping to 2.4%, lower than 2.6% in 2023. The International Monetary Fund (IMF) also pointed out that the pace of global economic recovery is slowing down, with the gap between various economic sectors and regions continuously expanding.
Looking further into the future, the period from 2020 to 2024 will be the slowest five-year growth period for the global economy in 30 years, indicating that the current economic slowdown is not a short-term phenomenon but part of a long-term trend.
There is a significant divergence in growth between developed and developing economies. The growth rate of developed economies is expected to be only 1.2% in 2024, while emerging markets and developing economies are expected to grow from 3.2% in 2023 to 3.8% by 2025.
For the crude oil market, the U.S. dollar, as the pricing currency for international crude oil prices, has a significant impact on oil prices due to its exchange rate fluctuations. When the U.S. dollar strengthens, the cost of purchasing crude oil in other currencies increases, which may lead to reduced demand from non-U.S. dollar countries, thereby causing oil prices to fall.
There is also evidence that, in some cases, a strong U.S. dollar may actually boost international crude oil prices. The U.S. Energy Information Administration points out that a strong U.S. dollar means that countries using non-U.S. currencies need to pay more, which to some extent raises crude oil prices.
Market participants' expectations of future supply and demand relationships also affect oil prices. When there is an expectation of tight supply or increased demand, oil prices tend to rise in advance.
For the gold market, there is a negative correlation between the U.S. dollar exchange rate and gold prices.When the US dollar strengthens, the price of gold, which is priced in dollars, becomes relatively higher. This suppresses the demand for gold in the international market, leading to a decrease in gold prices. Conversely, when the US dollar weakens, the price of gold becomes relatively lower, increasing demand and thereby driving up gold prices.
A stronger US dollar also makes gold, priced in dollars, more expensive for investors holding other currencies, further suppressing demand.
**Impact on China**
The recent series of actions by the Federal Reserve has indeed brought about multifaceted impacts on our country, China.
The Federal Reserve's tightening policies usually lead to a stronger US dollar, thereby increasing the depreciation pressure on the renminbi, which may trigger capital outflows and have a negative impact on our country's stock and bond markets.
Historically, after the Federal Reserve raised interest rates, our country's asset prices have fallen on several occasions. During the interest rate hike cycles in 1994, 1999, and 2004, our country's asset prices fell by 29.2%, 13%, and 19.8%, respectively.
Due to significant declines in the prices of gold and crude oil, our country's import costs may decrease, which is beneficial for easing domestic inflationary pressures. This may also suppress investment and consumption in related industries.
If the US economy slows down or falls into recession, with reduced global demand, it may drag down our country's export performance. Our government may need to adjust monetary policy to cope with external shocks and maintain stable economic growth.
**Conclusion**
In recent years, the trend of A-shares has been converging with that of US stocks. Therefore, adjustments in the US stock market may have a certain impact on A-shares, especially the performance of growth stocks, which may be more affected.The policy trends of the Federal Reserve have profound implications for our country's economy and financial markets. We need to closely monitor its subsequent developments and flexibly adjust domestic policies to address potential risks and opportunities.
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