Over the past month, the market style has changed abruptly. US stocks and US debt have both slashed, Bitcoin and gold have surged and retreated, and Chinese stocks have rebounded sharply against the trend.

According to a recent analysis by Bank of America Chief Investment Officer Michael Hartnett, the turning point of all of this may have occurred on March 13, when Bitcoin reached an all-time high of $73,157 and then fell. It was also on this day that the market's expectations for interest rate cuts changed from being “more dove” than the Federal Reserve to being “more hawkish” than the Federal Reserve.

Following the Federal Reserve's FOMC decision last week, the market expected the Fed to cut interest rates by 40 basis points this year, a sharp decrease from the 2% forecast at the beginning of the year.

Market watershed

On March 13, not only was the Bitcoin market turning point, but other assets also “changed their faces” one after another.

Measuring the implied volatility of bonds (MOVE Index) soared above 100, Mexican peso, yen, and cocoa futures crashed, and corporate bond prices plummeted.

At the same time, there has been a huge reversal in Chinese assets. Since the January low, the Hang Seng Index has accumulated a cumulative increase of nearly 21%, the Hang Seng Technology Index has accumulated a cumulative increase of more than 28%, and major Hong Kong stock indices have successively entered the bull market.

According to Bank of America's latest weekly capital flow data, both gold and bitcoin have experienced large-scale outflows of capital. Among them, the outflow of gold funds reached 1.1 billion US dollars, the largest outflow since January 2024, and the outflow of Bitcoin was 600 million US dollars, the largest outflow since June 2022.

China's equity funds saw their biggest inflow in 8 weeks.

Hartnett said that behind the change is that the market will continue to set prices for higher interest rates for a longer period of time.

As for future trends, Hartnett made a comprehensive assessment of the current financial market and pointed out several key trends:

The bond market is in the early stages of a long-term bear market. The main driver is inflation. The deeper causes include excessive fiscal easing, debt accumulation, war, and de-globalization. Hartnett believes that this bear market will end only when the US reduces its fiscal surplus;

The commodity market, on the other hand, is entering the beginning of a long-term bull market. The reason is the same as the bond market, and it is benefiting from new energy demand driven by AI technology;

The stock market is currently in the late stage of a long-term bull market, which will eventually end in a bubble or economic recession;

The US dollar is in a long-term bear market, especially compared to cryptocurrencies and gold. This trend is expected to some extent, because America's rising debt and deficit situation forces it to need a weak foreign exchange value to attract foreign investment or support treasury bonds by cutting interest rates.

Furthermore, Hartnett notes that the US spring data showed clear signs of stagflation:

The ISM New Orders and Jobs Index are both below 50, while the Pay Price Index is above 60.

Meanwhile, the ratio of job vacancies to the number of unemployed people in the US is at its lowest since August 2021, which indicates a rise in labor costs.

Editor/Somer