Whales' Rolling Window: Assassins, Rate Cuts and Portfolio Allocation
The result of the US election is an essential factor affecting the process of interest rate cuts and liquidity return. After Trump was assassinated but survived, the result of the US election seems to have been locked in advance, which means that more interest rate cuts seem to be on the way. In this case, most risky assets will benefit, and crypto assets and commodities, as non-equity assets with potentially better performance, may get more shares in portfolios.
The Fed has repeatedly emphasized over the past year that the threshold for rate cuts is not merely"inflation returning to 2%" but"the Fed being more confident in inflation returning to 2%." Following this inflation report, it can be said that the Fed has almost met the threshold for rate cuts, suggesting that a global rate-cutting cycle is about to begin.
It must be admitted that most investors do not care about what happens in 3-5 years. The expectation of interest rate cuts is evident in stimulating the risk asset market: the probability distribution implied by SPX options is generally biased towards bullish, and this bullish sentiment has even pervaded investors' expectations for the next 1-2 years.
Implied probability distribution of iShares Russell 2000 ETF far-month options, as of Jul 16, 2024. Source: optioncharts.io Performance comparison between mainstream cryptos and overall commodities, as of Jul 16, 2024. Source: S&P Global SPDR Gold Shares far-month options' implied probability distribution, as of Jul 16, 2024. Source: optioncharts.io
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