Fed’s First Rate Hike in Three Years: In-Depth Analysis of Future Trends for Three Major Assets

⚡️ The Core Logic Behind the Fed’s Rate Hike

While many assume the Fed’s first rate hike in three years is purely a response to domestic high inflation, this is actually the starting point of a global liquidity contraction. Over the past two years, the Fed’s massive easing injected unprecedented liquidity into markets, pushing up prices of all global assets and driving US inflation to a 40-year high. This 25 basis point hike marks the Fed’s shift from loose to tight monetary policy. Its core goals are not only to curb inflation, but also to attract global capital back to the US and support the dollar’s hegemony. For all global risk assets, when the liquidity tide recedes, we will finally see who has been swimming naked.

The market has already priced in this expectation for more than half a year. Since the fourth quarter of last year, various assets have gradually incorporated rate hike expectations into their prices, so we will not see a sudden shock similar to the 2018 rate hikes. However, it is important to note that this hike is just the beginning. The market expects 3 to 5 more hikes this year, and the subsequent pace of tightening is the core variable that will affect asset prices. We cannot only focus on the short-term impact of a single rate hike; we must pay attention to the trend of the entire rate hike cycle.

? US Stocks: Is All Bearish News Priced In After the Hike?

It is easy to assume that Fed rate hikes will definitely push US stocks into a sustained downtrend, but the impact of this rate hike has actually been fully priced in since last year ?. Since last year, the Nasdaq index has corrected more than 15% cumulatively, and the S&P 500 has corrected nearly 10%. Valuations of growth stocks have been gradually compressed, already reflecting rate hike expectations in advance. After the hike is finalized, a short-term market move where "all bad news is good news" may actually emerge, especially for large-cap tech stocks that have seen steep corrections earlier, which will get a phased valuation repair opportunity.

But in the long run, the suppression of liquidity contraction on growth stocks will not end immediately. Fed rate hikes push up US Treasury yields, which directly impacts the discounted future cash flow of growth stocks, leading to a continued downward shift in valuation centers. For retail investors, you can pay attention to oversold opportunities in leading stocks with high earnings certainty in the short term, but do not blindly chase gains. In the medium term, you still need to be alert to correction risks brought by the Fed’s continued rate hikes, and pressure on high-valuation growth stocks will persist for some time.

? Gold: Does Gold Still Have Allocation Value Amid Rate Hikes?

Many assume that Fed rate hikes will definitely push gold prices into a sustained decline ?, but gold’s multiple attributes mean it will not simply move in line with the dollar. Traditionally, a stronger dollar and rate hikes do suppress gold prices, but today, beyond its role as a counter asset to the dollar, gold also has dual support from inflation hedging and geopolitical risk aversion. Global inflation remains at high levels, geopolitical risks such as the Russia-Ukraine conflict have not been fully resolved, and safe-haven demand in the market remains strong.

Looking at historical data, gold often sees a short-term correction at the start of a rate hike cycle, but as the rate hike process progresses, when the market begins to expect slower economic growth, gold will actually deliver solid performance. For investors who want to allocate gold to hedge risk, you can build positions in batches on dips, do not go all-in with a heavy position at once. As a hedging option in broad asset allocation, gold still has irreplaceable allocation value in a high inflation environment.

? Bitcoin: Will It Follow US Stocks Or Forge An Independent Trend?

Many assume that as "digital gold", Bitcoin will move in lockstep with traditional gold, but today Bitcoin’s asset attribute is more tilted towards high-risk growth assets. Its correlation with the Nasdaq index has exceeded 0.8, so its trend is highly tied to US equities ?. Over the past two years, the Fed’s massive easing and abundant liquidity pushed Bitcoin’s price up to an all-time high of $69000. Since last year, as rate hike expectations rose, Bitcoin has fallen more than 50% from its peak, already reflecting the expectation of liquidity contraction in advance.

Many also assume that rate hikes will completely eliminate Bitcoin’s upside, but Bitcoin’s bull and bear cycle has always been highly tied to the global liquidity cycle ?. After the last rate hike cycle ended, the Fed cut rates and eased, and Bitcoin quickly exited the bear market and started a new bull run. At the start of this rate hike cycle, Bitcoin will indeed face heavy selling pressure, as institutional players will reduce risk exposure, and high volatility assets will be sold first. But if the pace of rate hikes slows later and liquidity expectations shift, Bitcoin will regain upward momentum.

For retail investors, do not blindly bottom Bitcoin right now, and do not panic sell and cut losses either. In the short term, Bitcoin’s volatility will increase. The $30000 level is a key area for bull and bear contention; if it breaks below $25000, a much deeper correction may follow. In the medium and long term, this Fed rate hike cycle will not last very long. Once inflation cools and the pace of tightening slows, Bitcoin will still be one of the core assets that benefit from loose liquidity.

? Response Strategy For Retail Investors

Facing global asset volatility brought by the Fed’s rate hike, many assume you should immediately liquidate all assets to avoid risk, but the reasonable response is to adjust your position structure, keep sufficient cash flow to deal with volatility, and do not take overly extreme actions ✅. All risk assets will be affected to varying degrees during a rate hike cycle, but it is exactly when the tide recedes that you can acquire cheap high-quality asset positions.

For investors looking to allocate to blockchain-related assets, you can use dollar-cost averaging to build positions in batches, reduce your average holding cost, and avoid the risk of going all in at once. At the same time, you should closely monitor the Fed’s subsequent rate hike pace and inflation data, as these core variables will directly affect asset price trends. Overall, this rate hike is a turning point in the cycle, not the end of the world. With proper asset allocation and well-controlled position sizing, you can navigate the cycle and earn solid returns.