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FEBRUARY 27, 2024

BITCOIN’S BOOM

Earlier this morning, Bitcoin surged past the $57,000 mark for the first time since late 2021, driven primarily by escalating investor demand through exchange-traded funds (ETFs) and additional digital asset purchases made by MicroStrategy Inc. Notably, U.S.-based Bitcoin ETFs have collectively received a significant $6.1 billion in investments, and MicroStrategy’s recent acquisition of 3,000 Bitcoin tokens, which brought its total holding to approximately $10 billion, shows the broader interest in the cryptocurrency beyond its core enthusiasts and reinforces confidence in its potential. Moreover, although Bitcoin briefly dipped below the $57,000 mark as of 8:00 AM CST, it continues to maintain a positive momentum. Furthermore, it is worth noting that since the beginning of the year, Bitcoin’s value has surged by 32%, and has notably outperformed traditional assets like stocks and gold, which indicates a positive sentiment in the crypto market. As a result, interest in alternative digital assets such as Ether and Dogecoin has also risen.

GRADUAL CUTS

Contrary to initial expectations, the Federal Reserve is now anticipated to proceed cautiously with reducing rates, following a series of substantial interest rate hikes. The decision comes in light of the resilience of the U.S. economy with low unemployment rates, higher-than-expected inflation in January, and persisting concerns regarding service costs. The cautious approach aims to minimize potential risks and uncertainty, including possible political criticism. Lately, Fed officials have emphasized the importance of making decisions based on incoming economic data, which makes it challenging to predict the timing and pace of future rate cuts. Some analysts recommend a gradual approach, incorporating pauses between cuts, similar to a strategy used in the mid-1990s. However, such a tactic may lead to market confusion and potential criticism due to its unpredictable nature. Overall, the Fed’s decision to proceed cautiously with reducing rates reflects a balancing act between economic stability and potential risks, but still this decision will somehow affect the economy, thus, eyes are focused on further updates.

SHIFT IN TREND

According to recent data, investors poured a record amount of money into an intermediate-term Treasury ETF last week, indicating a shift away from short-term bonds amid diminishing expectations of significant interest rate cuts by the Federal Reserve this year. The Vanguard Intermediate-Term Treasury ETF (ticker VGIT), which focuses on U.S. government bonds maturing within 3-10 years, received $1.7 billion last week, marking the highest weekly inflow since its inception in 2009. This trend emerged as hotter-than-anticipated inflation data and continued economic strength drove Treasury yields to year-to-date highs. As a result, traders are now pricing in about three quarter-point rate cuts this year, which is roughly half of what they were expecting late in 2023. These developments have prompted increased demand for bonds in the intermediate part of the yield curve, as they offer lower exposure to interest-rate risks than longer-maturity securities while still yielding relatively high returns. Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management, noted, “The intermediate part of the curve has gotten more interesting as, in part, the rates complex reacted to a lower likelihood of the Fed cutting so soon. Additionally, there appeared to be large ETF shifts likely related to asset allocation rebalancings”. Moreover, other ETF flows also reflected these shifts, with last week seeing outflows of $508 million from the Schwab Short-Term U.S. Treasury ETF (SCHO) and $397 million from the Vanguard Short-Term Treasury ETF, as well as an outflow of roughly $284 million from the iShares 20+ Year Treasury Bond ETF (TLT).

RETAIL MIXED BAG

Lowe’s, despite facing diminished customer engagement in home projects, surpassed expectations in its latest earnings report, as the home improvement giant, contending with a softer fourth-quarter forecast, managed to outperform with earnings per share reaching $1.77 compared to the expected $1.68, alongside revenues of $18.60 billion surpassing the anticipated $18.45 billion. Net income for the quarter was reported at $1.02 billion, or $1.77 per share, marking an improvement from the previous year’s figures. Despite a decline in sales compared to the year-ago period, exacerbated by weaker demand for DIY projects and unfavorable weather conditions, the company remained resilient. Moreover, Lowe’s strategic financial moves included significant investments in share buybacks and dividend payments. The company’s shares, although trailing behind the S&P 500 gains, showed a positive trajectory, closing at $231.32 on Monday, reflecting investor confidence. On the other hand, Macy’s, amidst a challenging retail landscape, reported a dip in sales for the holiday quarter, with revenues of $8.12 billion falling short of the expected $8.15 billion.Although there were plans for strategic transformation under new CEO Tony Spring, Macy’s faced a loss of $71 billion for the fiscal fourth quarter, attributed partly to impairment and restructuring costs.

INTERNATIONAL NEWS

BlackRock Investment Institute’s strategists believe that Japan’s stock market has the potential for further growth due to strong corporate earnings and ongoing corporate reforms. They are optimistic about the outlook for Japanese equities, suggesting that shares could surpass their previous all-time highs. Recently, the Nikkei 225 Stock Average has been performing well, and the broader Topix has outpaced most major stock markets in the U.S. Moreover, recent praise from Warren Buffett for Japanese trading houses’ shareholder-friendly policies has added momentum to the market. Additionally, corporate governance reforms, aimed at enhancing profitability and returning capital to shareholders, are seen as a significant contributing factor to the market rally. Furthermore, BlackRock also expects that the Bank of Japan will gradually phase out its ultra-loose monetary policy to avoid disrupting the progress made in addressing years of deflation.

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