Last Updated on September 7, 2022 by Ruddy Gunawan
Have you seen all the analyses and predictions from the mainstream media? How about all the crypto trading channels with all their technical analysis? Well, if you have been following all the news and expert opinions recently, we can all agree that the market’s future is still anybody’s guess at this point.
Nobody truly knows if we have reached the market bottom or if the worst is still yet to come. But one thing for sure is that we can always try to manage our risk accordingly based on timings around the major news. But before we get there, let’s study all the important macroeconomic reports and their impact on both the stock and cryptocurrency market.
Jackson Hole Speech Tanked The Market
Federal Reserve Chair Jerome Powell made a hawkish statement at the central bank’s annual symposium in Jackson Hole. Powell claimed that the Fed would keep going aggressive with interest rate hikes and would not stop even if it means they might cause more harm to the U.S. economy.
Both the stock market and the crypto market reacted negatively to this speech. Some analysts from mainstream media believed the market would get worse because the current policies from the Fed were not strong enough to counter inflation.
Wall Street expected the Fed’s interest rate to peak at 3.5-3.75%, which is only slightly higher than the current benchmark target at the time of this article’s publication (2.25%-2.5%). However, some analysts started to become more skeptical after Jackson Hole’s speech. Now we have two differing opinions – either the rate would peak at 3.5% or we might go above 4%.
Here’s the thing. If we truly go beyond 4% by the end of this year or early next year, that means the Fed will have to make aggressive rate hikes by this September and next November. The market might have priced in the possibility of a 75 bps hike for this month’s FOMC statement, though.
U.S. August Jobs Report – Better Than Expected, Slower Than Before
Another important macroeconomic factor to consider is the U.S. August jobs report that just came out on September 2. The number of non-farm employment changes is lower compared to the previous month, but it’s still better than expected.
Employers registered 315,000 jobs in August, which is lower than last month’s 526,000 jobs. That being said, this number (315,000) is still higher than expected (295,000).
Both the jobs report and the CPI number are two main indicators for the Fed to decide on the next interest rate hikes. While more jobs mean a better economy, keep in mind that the Fed’s main goal is to put pressure on inflation.
Let’s just say the Fed doesn’t want an overwhelmingly good jobs report because they want to be able to curb people’s spending. When there are more people that can spend a lot, it will become harder to control inflation.
However, since the latest jobs report was pretty close to expectation (315,000 vs. 295,000), the market didn’t react that much.
CPI Report And The Ethereum Merge
How about the CPI report? First of all, the Core Price Index (CPI) 12-month percent changes that include the month of August will be released on September 13. Many expect the upcoming CPI number to remain high but should be lower than 8.5%, that was released last month.
Just like what I’ve mentioned above, the CPI report (alongside the jobs report) will help us to predict the Fed’s next interest rate hike policies. If the CPI report doesn’t stray far away from the market’s expectation, we can expect either 50 bps or 75 bps hike. I personally feel even a 75 bps hike is already priced in by the market, as we can see from the market dump after the Jackson Hole’s speech.
For Crypto Traders – Beware Of Ethereum Merge
For crypto traders, there is another event you need to pay attention to. Around the middle of September, we will have Ethereum Merge, where Ethereum will switch its consensus from Proof-of-Work (PoW) to Proof-of-Stake (PoS). This Merge is one key event to watch.
From mid-June to mid-August, ETH and many Ethereum-related cryptocurrencies went up significantly. ETH alone went up from $881 to $2,030. Cryptocurrencies that provide layer-two solutions to Ethereum (i.e., Optimism and Polygon) went up even higher, with over 200% increase within the same time period.
Here is why it’s important. Have you ever heard of the strategy “buy the rumor, sell the news?” This strategy is very common in the traders’ community. Usually, people pumped a cryptocurrency that was about to complete a major event, and they immediately dumped the same cryptocurrency right after the event happened.
While there’s no certainty this will happen to Ethereum post-merge, this is still a very likely possibility. Many speculative traders bought the bottom already in mid-June, and there are some possibilities that they will dump the market post-Merge, or even days before Merge.
The Fed’s Quantitative Tightening (QT)
Another macroeconomics event to pay attention to (and often get overlooked by most mainstream analysts) is the Fed’s quantitative tightening (QT) program. According to Bloomberg, the Fed plans to aggressively increase its QT program from $47.5 billion to $95 billion per month.
This QT might have a negative effect on both the stock market and crypto market, because all the prices went up significantly during Quantitative Easing (QE), and many traders believe the opposite reaction will happen during QT. However, we currently live in a not-so-normal year, so this prediction might be too premature at this point.
September – Pump Or Dump?
We are back to the original question, will the market pump or dump this month? Like I said earlier, it’s anybody’s guess at this point. We don’t know for sure if the bulls will take over the market this month or if it will dump further. Looking at all the key data above, I say it’s better to wait until we have more announcements, especially related to the CPI report on September 13.
And once again, if you trade cryptocurrencies, you will need to pay attention to Ethereum Merge. I expect much higher volatility around Ethereum Merge day, but nobody knows for sure if it will go up or down post-Merge.
Just remember that many speculators bought Ethereum and Ethereum-related tokens at the bottom back in mid-June, so you need to trade more cautiously if the price remains way too high compared to mid-June’s price.
Also, don’t forget that September is a traditionally bearish month for the market. You might want to consider this before you trade.
The Case For Market Bulls
Traders and investors who are optimistic usually believe we reached the market bottom last June. Even if the market drops further, the bulls believe we will not make a new low. They are confident that inflation has peaked, and thus, the Fed will lower interest rates sometime next year.
According to them, the stock market’s rally from June to August was proof that the market has been “frontrunning.” While they believe the market will not rally anytime soon, at least the bottom was in already, and it’s always good to buy near the bottom.
The Case For Market Bears
Unlike the bulls, the bears remain skeptical. They believe the bulls will have to face a reality check once we get into a “hard landing” and economic recession. At the end of the day, buying stock and crypto at the expected bottom is one thing, but expecting everybody else to buy at a higher price is another thing.
In order for crypto and stock to make a strong rebound, you need the retail traders to be willing to buy at a higher price. However, retail probably will not buy at a higher price if the economy doesn’t get stronger, which is very likely if the Fed is not willing to cut interest rates by next year. And the same speculators who bought the bottom last June might eventually decide to dump and trigger a chain reaction event if they see nobody wants to buy at a higher price.
At the end of the day, trading is all about risk management. You can make bad predictions 50% of the time, but you will still reap massive rewards if you manage your risks accordingly. Apart from knowing where to put your stop loss and take profit levels, you also need to make sure you enter at the right moment.
If you believe September will be a good month for the market to bounce back, you should only make your entry around key events that I mentioned above. For example, you can buy stock and/or crypto around CPI report day or around FOMC statements. Yes, the market will be more volatile around those days, but you will be able to see the bigger picture to analyze the Fed’s next policies. If you decide to buy, you should buy after a big red day in the market.