Market Review and Investment Outlook Post-Fed Meeting

Market Performance Overview

The U.S. Dollar Index experienced a notable decline this week, falling to 98.42 after briefly revisiting the 99 level at the start of the week. U.S. Treasury yields generally decreased, with the 10-year yield dropping below 4%, signaling a significant increase in market expectations for Fed rate cuts later this year. This spurred safe-haven inflows into gold and the bond market.

Precious Metals Surge and Retreat

Precious metals saw substantial gains. Spot gold hit fresh all-time highs for five consecutive days, approaching $4,380 per ounce. Silver also surged, briefly surpassing $54 per ounce. The drivers included heightened safe-haven demand, concerns about U.S. credit risk events, and increased expectations of rate cuts. However, both spot gold and silver experienced sharp declines on Friday, dropping approximately 2% and 4% respectively by 10 PM.

Foreign Currency and Oil Price Fluctuations

Currencies like the Euro, British Pound, and Japanese Yen benefited from the weaker dollar. The USD/JPY exchange rate retreated from its eight-month high, briefly dipping below 150, driven by increased safe-haven demand due to distressed loan issues facing U.S. banks.

International crude oil prices showed a downward trend, expected to register a third consecutive weekly decline. Warnings from the IEA about a potential global supply glut by 2026, coupled with lingering trade frictions, contributed to this drop.

Mixed U.S. Equity Market Performance

The U.S. equity market displayed a volatile trend, with mixed performance across sectors. While tech stocks initially saw strong gains, driving the Dow, S&P, and Nasdaq higher, these gains were not sustained. Concerns about credit quality, heightened by disclosures of loan fraud by two U.S. regional banks, triggered a significant decline in regional bank stocks.

Expert Opinions and Analysis

• A Bank of America survey indicated that being long gold has now become the most crowded trade, replacing long positions in the Magnificent Seven U.S. tech stocks.
• Several investment banks have adjusted their price targets for gold, with ANZ predicting gold will peak at $4,600 by next June, and Bank of America raising its year-ahead forecast to $5,000 per ounce. Societe Generale anticipates gold reaching $5,000 by the end of 2026.
• Analysts at Capital Economics projected that political uncertainty in Japan is unlikely to derail the country's bond and equity markets.

Key Events Shaping the Markets

• Market Expectation of Rate Cuts: Traders are ramping up bets on more-than-conventional Fed rate cuts before year-end, while Powell hints at potentially ending quantitative tightening soon.
• U.S. Government Shutdown: The federal government shutdown will continue into its third week, delaying the release of key economic data and impacting monetary policy decisions.
• Regional Bank Woes: Significant losses in market capitalization of U.S. regional banks due to credit quality concerns sparked market volatility.
• Shanghai Gold Exchange Memo: The Shanghai Gold Exchange issued a risk management warning amid significant volatility in the precious metals market.
• Putin-Trump Talks: Presidents Putin and Trump discussed the Russia-Ukraine conflict and a potential meeting in Budapest.