The Israel-Iran conflict, which had been affecting the market for the past two weeks, has temporarily come to an end. On the 25th, due to the easing of the Middle East situation, Bitcoin rose from $100,000.00 to $108,000.00, recovering lost ground in just two days and returning to the $106,000.00 support level. It is now fluctuating at the $107,000.00 level, but clearly lacks direction and trading momentum.

Although the S&P 500 and Nasdaq indexes both reached new highs when the U.S. stock market closed last week, Bitcoin did not follow this upward trend to break through $110,000.00, but instead chose to continue hovering below $108,000.00. At the same time, many indicators discussed last week showed that Bitcoin would have difficulty breaking through its current situation without positive news. The daily line, which broke through the upward trend line due to the news of Iran blocking the Strait of Hormuz, has not yet recovered and is still at the beginning of a downward trend.

Tariff Grace Period Nears Expiration, Market Expectations May Change

The grace period for the tariffs previously imposed by Trump on various countries will expire on July 9th. Although Trump specifically announced last week that a tariff agreement with China had been signed, and the White House downplayed the importance of the "deadline," the news that no agreement was reached with Canada before the close on Friday caused market concerns. Although the U.S. stock index reached a new high, it also slightly declined due to this news. Therefore, the tariff situation between various countries and the United States will be the focus next week.

The U.S. economic data that needs more attention this week is related to the employment situation, including Tuesday's Job Openings and Labor Turnover Survey (JOLTS), Wednesday's ADP Nonfarm Employment Change, and Thursday's Nonfarm Payroll and unemployment data. The market currently expects a greater chance of an interest rate cut in September, with some increase in expectations for July, so this week's employment data may become an opportunity for a rate cut in July. The European Central Bank Forum, which will be held on July 1st, will feature speeches by central bank leaders from various countries, including Powell. Although no major policy statements are expected, the economic rhetoric of various central banks can be monitored at the same time.

Will a Fed Rate Cut Necessarily Cause U.S. Stocks and the Crypto Market to Rise? Interpreting Investment Strategies Under 3 Types of "Rate Cut Motives"

Whenever the market expects the U.S. Federal Reserve (Fed) to cut interest rates, investors are always jubilant, believing that the stock market will usher in a bull market. However, history tells us that rate cuts are not a panacea. The impact of rate cuts on the stock market depends entirely on the economic background behind them: whether it is a "normalization cut" to stimulate a stable economy, a "recessionary cut" to cope with an economic recession, or a "panic cut" to solve a sudden crisis. Each type of rate cut background brings different effects to the market, and the S&P 500 index has even fallen by more than 20% after rate cuts.

Three Rate Cut Scenarios, Affecting Different Market Trends

Historical data shows that although rate cuts are likely to cause the stock market to rise, there are also some situations where the stock market will significantly correct. The following three "motives" for rate cuts are key to determining the subsequent performance of the stock market:

1. Normalization Cuts: A Free Ride for the Stock Market

When the economy is stable, inflation is under control, but the Fed cuts interest rates to preventively stimulate growth, it is usually most beneficial to the stock market. This type of rate cut is designed to return monetary policy from tightening to neutral, rather than to save the economy.

Historical Case: In 1995, the Fed cut interest rates in a stable economic situation, and the S&P 500 index surged 21.17% in the following year, with a cumulative increase of more than 114% after three years.
Historical Average: Since 1970, in the year after the start of a "normalization cut," the average increase in the S&P 500 index has been approximately 13%.

2. Recessionary Cuts: A Warning Sign for the Stock Market

When the economy has shown obvious signs of recession, such as rising unemployment and shrinking GDP, the Fed's rate cuts are often too late, but instead confirm the economic difficulties. At this time, rate cuts cannot immediately reverse pessimistic sentiment.

Historical Case: After the bursting of the dot-com bubble in 2001, the Fed began to cut interest rates, but the S&P 500 index still fell 12.57% within a year. During the rate cut cycle triggered by the subprime mortgage crisis in 2007, the S&P 500 index plummeted by more than 22% a year later.
Historical Average: Since 1970, if the economy falls into recession after the first rate cut, the average decline in the S&P 500 index has been as high as -20.5%.

3. Panic Cuts: An Opportunity for Rebound After a Crisis

When the market faces a sudden major crisis (such as a financial crash or a global event), the Fed will take emergency and large-scale rate cuts to stabilize market confidence. Although the short-term impact is severe, it often becomes the starting point for a market rebound.

Historical Case: After the Black Monday stock market crash in 1987, the Fed urgently cut interest rates, and the S&P 500 index rose more than 16% in the following year. The Fed's panic rate cut in response to the outbreak of the COVID-19 pandemic in 2020 also laid the foundation for the epic rebound in 2021-22.
Historical Average: In this type of scenario, the S&P 500 index has risen by an average of 6.6% in the year after the first rate cut.

Current Market Analysis: Which Type Do the 2024-2025 Rate Cuts Belong To?

Since September 2024, the Fed has started a rate cut cycle, lowering the federal funds rate to a range of 4.25%-4.50%. So, which type does this rate cut belong to?

Currently, the2024/25 rate cut cycle largely fits the characteristics of a "normalization cut" for the following reasons:

Strong Economy: The U.S. GDP growth rate reached 3%, and the unemployment rate remained at a low of 4.2%, indicating that the economy has not fallen into recession.
Cooling Inflation: The inflation rate has fallen from its high point to 2.7%, gradually moving towards the Fed's 2% target.

In this context, the Fed's main purpose in cutting interest rates is to maintain a "soft landing" of the economy while controlling inflation. The market's initial reaction has also confirmed this: the S&P 500 index hit a record high after the first rate cut in September. However, the market has also experienced fluctuations, reflecting investors' concerns about high valuations, potential inflation risks, and future policy uncertainties (such as tariffs).

Looking ahead to 2025, if the U.S. economy can maintain positive growth and the unemployment rate remains below 5%, then the subsequent rate cuts (even if the Fed predicts fewer cuts) will continue the "normalization" trajectory.

Are Rate Cuts Good or Bad for Bitcoin?

Bitcoin, currently as a risk asset, has a similarly complex reaction to rate cuts and is deeply influenced by market sentiment and external factors.

2019 (Normalization Cuts): Short-Term Volatility, Medium-Term RiseThe Fed made preventive rate cuts in response to the global economic slowdown. Bitcoin rose sharply in advance on rate cut expectations, but fell 30% after the first rate cut in July, reflecting short-term selling pressure from "selling the news." However, as market liquidity increased, Bitcoin stabilized by the end of the year and eventually rose.
2020 (Panic Cuts): First Crash, Then Rise, Narrative StrengthenedIn response to the COVID-19 pandemic, the Fed urgently lowered interest rates to zero. Bitcoin plummeted along with all assets in the initial market panic, falling 39% in one month. However, due to global money printing and flooding liquidity, its narrative of "resisting fiat currency devaluation" and "digital gold" was strengthened, starting an epic bull market that lasted for more than a year and breaking through $60,000.00 in 2021 to set a new high at the time.
2024 (Normalization Cuts): Short-Term New High, Medium-Term Oscillation
The Fed began cutting interest rates in September before the U.S. election, and Bitcoin then broke through the previous high of $60,000.00, and shortly after Trump was elected, it broke through the important historical high of $100,000.00. However, this market reaction mostly reflected the positive impact of Trump's election on Cryptocurrency, and since then, Trump's remarks and policies have had a greater impact on Bitcoin than changes in interest rate expectations. Currently, Bitcoin is fluctuating between $103,000.00 and $108,000.00.

2025 Performance and Outlook

In the 2024/25 "normalization cut" cycle, Bitcoin's performance shows the characteristics of short-term volatility and long-term benefits. For example, although Bitcoin rose 4% after the September rate cut, it also experienced a brief correction. After the December rate cut, Bitcoin once fell 4% due to the Fed Chairman's hawkish signal.

Nevertheless, benefiting from thelisting of spot ETFs andTrump's pro-Cryptocurrency political stance and other strong external factors, Bitcoin's annual increase in June 2025 has reached 145%, reaching $107,000.00.

Looking ahead, if the 2025 rate cut continues the "normalization" tone:

Short-term (after the news is announced): There may be a 2%-5% price fluctuation, and the market will digest the Fed's policy guidance.
Medium to long-term (6-18 months): History shows that increased liquidity will drive funds to risk assets. Analysts predict that Bitcoin has the potential to rise 50% to 200%, with a target price that may reach $130,000.00.

Key Risks:

Risk Aversion Sentiment: If rate cuts are interpreted as a sign of economic weakness, Bitcoin may fall with the broader market.
Inflation Risk: If factors such as tariffs cause inflation to reignite, the Fed may suspend rate cuts, reducing Bitcoin's attractiveness.
Regulatory Pressure and Market Overheating: Changes in regulatory policies and Bitcoin's already high valuation may trigger market corrections.

Which Stocks Benefit Most in a Rate Cut Environment?

The Cryptocurrency market lacks narrative, but U.S. stocks have recently experienced greater volatility and gains. Funds from the crypto market flowing into U.S. stocks is indeed happening. So, in a rate cut environment, which types of U.S. stocks are worth investing in? Historical experience shows that rate cuts have different effects on different industries. The following stocks usually perform better in a rate cut environment:

Leading Groups:
- Consumer Discretionary and Consumer Staples: Rate cuts stimulate consumer willingness, with an average increase of up to 14% in 12 months.
- Healthcare: Less affected by economic cycles, with stable performance and an average increase of approximately 12%.
- Interest Rate Sensitive Industries:Automobiles,Apparel Retail,Real Estate Investment Trusts (REITs) and other industries directly benefit from lower borrowing costs.
Potential Lagging Groups:
- Utilities and Financials: In an environment of falling interest rates, the defensive appeal of utilities decreases, and banks' net interest margins may be squeezed, resulting in relatively weaker performance.

Conclusion: "Rate Cut Motives" Must Be Evaluated

In summary, whether Fed rate cuts are a blessing or a curse for the stock market cannot be generalized. The key is "why cut interest rates." Investors should consider the following points when allocating assets:

Identify the Situation, Don't Just Listen to Rumors: Rate cuts themselves are not a buy signal. Investors should first judge the current economic background. Although it is currently in a "normalization cut" cycle, which is historically beneficial to the stock market, the market environment may change at any time. Factors such as tariff impacts and wars will change the market landscape.
Learn from History, But It's Not Absolute: Data shows that in non-recessionary periods, if the S&P 500 index is near a historical high when rate cuts are initiated, the probability of rising in the next year is extremely high, with an average return of 15%. However, current market valuations are high, coupled with uncertainties such as elections, which may limit gains and bring volatility.
Pay Attention to Industry Rotation: Appropriate attention can be paid to consumer discretionary, healthcare, and REITs and other stocks that have historically performed well in the rate cut cycle.
Stay Cautious and Diversify Risks: Although the soft landing outlook is optimistic, the risk of the economy turning to recession still needs to be vigilant. If economic data deteriorates, the nature of rate cuts may turn into "recessionary," and the market will face downward pressure, even Cryptocurrency will not be spared. Therefore, maintaining investment portfolio diversification and avoiding overreacting to a single piece of news is the long-term solution.

All You Need to Know in 10s

TermsPrivacy PolicyWhitePaperOfficial VerificationCookieBlog