Today's events in global markets served as a lesson on how strongly investors' desire to believe in the best can outweigh harsh reality. We saw a rally triggered by a single piece of news, but beneath this layer of optimism lies an extremely unstable structure. Let's figure out why today's 'sigh of relief' may prove premature.
On Monday, the market showed a sharp change in sentiment. The morning began with a predictable nervousness: against the backdrop of the ongoing conflict between Iran and Israel, investors moved into safe assets - the dollar and US government bonds. The risk of a major war and oil shock was more real than ever.
But then The Wall Street Journal published a piece that the market interpreted as a 'false alarm' signal. And perhaps, it was in vain.
Thesis 1: De-escalation in words, not in deeds
Key point: The key trigger for the market reversal was reports that Iran allegedly signaled a desire to reduce tension. I emphasize — signaled.
Analysis and influencing factors:
Unreliability of the source of calm: The market reacted as if a peace treaty had been signed. In reality, it is about signals conveyed through intermediaries. This is a delicate diplomatic game. The situation remains extremely volatile, and any new incident or harsh statement from either side could instantly reverse all today's positivity.
Premature reaction: Investors rushed to sell the dollar and government bonds, and the yield on 10-year US securities fell from 4.46% to 4.41%. This indicates that the market 'bought the rumors' but is not pricing in the risk that these rumors may not turn into real actions.
Foundation of the rally:Current optimism is not based on the actual fact of peace, but on hope for it. This is a very shaky foundation.
The market demonstrated a classic 'risk-on' response, but this transition from fear to greed seems hasty. Celebrating a de-escalation that de facto does not yet exist is a very risky strategy.
Thesis 2: All the weight of responsibility falls on the Fed
Key point: Since the geopolitical factor has been (perhaps temporarily) set aside, all attention is now focused on the US Fed meeting this week.
Analysis and influencing factors:
Expectations have not changed: The market still expects the rate to be maintained but is eager for comments and forecasts (the so-called 'Summary of Economic Projections'). Investors hope for two rate cuts this year.
Conflicting signals for the Fed: On one hand, weak data, such as the decline in manufacturing activity in New York (-16), indicates a need for easing policy. On the other hand, the very fact of the recent surge in geopolitical tension and the spike in energy prices will deter the Fed from 'dovish' statements. The regulator cannot ignore inflation risks, which have not gone away.
The Fed is set to walk a very fine line. Any divergence between its forecasts and the market's inflated expectations could be a cold shower for investors intoxicated by today's growth.
Thesis 3: Growth in individual stories in the shadow of overall risks
Despite the overall shaky backdrop, the rally was supported by strong corporate news, creating an illusion of universal prosperity.
Analysis and influencing factors:
Technologies and defense: The rise in shares of Meta, Tesla, and especially Palantir (a business related to military technologies) shows where investors are looking. Even amidst rumors of peace, they do not forget about those who profit from its absence.
Corporate drivers: The approval of the US Steel deal and Roku's partnership with Amazon are undoubtedly positive but local stories. They supported the indices, but did not cancel macroeconomic and geopolitical risks.
Uneven growth: IBM's record and Verizon's decline show that even on a 'green' day in the market, there are winners and losers, and investors remain selective.
The successes of individual companies create positive informational noise but should not overshadow the overall picture. The market has risen, but its growth is uneven and vulnerable.
What does all this mean for us?
For the crypto community, today's lessons are especially important.
A weak dollar can be misleading. Yes, the drop in DXY is good for Bitcoin. But if it is caused by premature and unfounded optimism, the dollar's reversal upwards could be just as sharp, impacting risk assets.
Do not confuse market hype with fundamental stability. Today's rally is a reaction to rumors. The cryptocurrency market, more than any other, knows how pump-and-dump schemes, based on hype rather than real events, end.
Focus on reality, not the market. The main factors remain not so much the quotes as the real situation in the Middle East and the Fed's rhetoric. They will determine the true trend for the coming weeks.
The market allowed itself a short breather, clutching at a straw of hope. But the geopolitical storm has not ended; it has merely taken a pause. Building a long-term strategy on such a fragile foundation is like building a castle on sand. Be vigilant and do not succumb to the universal euphoria. It could turn out to be very short-lived.
