The MOVE index, which gauges Treasury market volatility, is on the rise. This index hit its lowest point in mid-December, aligning with a slowdown in the upward trend of both Bitcoin (BTC) and the stock market. The cryptocurrency market is known for its quick shifts, and the recent flip from bullish to bearish sentiment within 24 hours exemplifies this.
This change in market dynamics is linked to a head-and-shoulders topping pattern, coinciding with a shift in market sentiment that fueled the post-election surge in both assets. The MOVE index, or the Merrill Lynch Option Volatility Estimate Index, measures anticipated 30-day volatility in the U.S. Treasury bond market. As the second-largest financial market globally (after currencies), volatility within the fixed-income market, particularly in Treasury notes, often leads to tighter financial conditions. This can trigger risk aversion across all financial markets. Unfortunately for Bitcoin bulls, the MOVE index is increasing, having bottomed out around 82 in mid-December, according to charting platform TradingView. On Tuesday, the index climbed to 102.78 after hotter-than-expected manufacturing data indicated a robust economy and persistent inflation, resulting in higher Treasury yields. Notably, the yield on the 30-year note rose to 4.92%, the highest since November 23rd, and the 10-year yield jumped to 4.68%, the highest since May. The surge in the MOVE index coincides with a decline in Bitcoin and the S&P 500. Bitcoin dropped by over 5% to $96,900 on Tuesday, while the S&P 500 declined by over 1%. The upward trend in both assets following the U.S. election lost momentum in mid-December, aligning with the bottom in the MOVE index. The MOVE index collapsed after Donald Trump's victory in the U.S. election on November 5th, which eased financial conditions for risk assets, leading to impressive gains into the year-end. However, both Bitcoin and the S&P 500 faced challenges when the MOVE index began to shift in mid-December. The key takeaway is that bonds are influencing the broader market narrative
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Rising Bond Yields and Stretched Valuations Create Headwinds for Global StocksBCA Research's MacroQuant report indicates that rising bond yields and high equity valuations pose challenges for global stock markets. Despite improving economic growth indicators, persistent inflation and tightening monetary policies negatively impact market sentiment. The model forecasts below-average returns for the S&P 500 in the next one to three months and favors defensive sectors like healthcare and utilities. Regionally, the U.S. remains a strong performer, while BCA suggests investors may benefit from increasing bond duration later in 2025. The report also notes the expected strengthening of the U.S. dollar and a cautious outlook on equities.
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