Winners and Losers of the FOMC Rate Cut – Market Overview

In this special piece, we take a global look at the markets to spot which asset classes appreciated yesterday's Fed cut (to 3.50% - 3.75%) the most.

A key distinction to remember is that when the FOMC lowers rates, it mainly correlates to short-term interest rates, not long-term ones, which are generally market-based.

In other words, the Fed dictates rates from overnight up to the 2-year mark (via policy rates and guidance), while supply and demand largely determine where yields between 2 to 50 years settle (barring exceptions like QE or Yield Curve Control).

Generally, rate cuts provide a boost to all asset classes: bonds, stocks, cryptos, foreign currencies (assuming their domestic rates remain unchanged), commodities, housing, and more.

However, due to the divergence between short-term and long-term yield movements, not all industries and asset classes receive the same boost.

We will now dive into the winners and losers since yesterday's Fed decision. After a global overview, we will drill down into which segments within asset classes appreciated the most (e.g., Stock sectors, Altcoins vs. Bitcoin, Short-term vs. Long-term bonds).

FYI: While things are always subject to change in markets, expect current flows to maintain their direction at least until next week's NFP (December 16) and CPI (December 18) releases.

Read More:

• Stocks rotation begins: Dow Jones leads the market while Nasdaq and Tech retreat
• Gold (XAU/USD) Forecast: $4250/oz Holds the Key for Bullish Continuation
• Reflections on Fed rate cut & forward guidance, silver continues to rally

Risk assets, including stocks and cryptocurrencies, were definitely the best performers before the Fed's rate cut, with a notable appetite for tech stocks (Nasdaq leading) and assets on the extreme side of the risk spectrum (like Altcoins) or those with higher general volatility.

For example, although not on the graph due to their extreme performance, Silver posted a +21.15% gain and Ethereum posted a 15.83% gain.

Therefore, during that timespan, overall flows were entirely focused on risk-on trades.

The current picture is much less obvious – logical as the timespan since the cut has been much shorter.

Still, a picture is drawing from the past 24 hours of trading: Defensive and Industrials are dominating the picture.

High-Beta and riskier assets are on the other hand taking a hit – Huge rotation flows.

In terms of asset classes, Metals and Equities are the winners from far.

But looking inside the classes makes it even more interesting.

We will provide the details on what and why right after – But just so you know, Silver is squeezing relentlessly, up 10% since Monday and about 3% since yesterday.

You can get access to levels for Silver trading right here – Pre-FOMC analysis but the levels are still valid.

As you can see, the past 24 hours in Stock Markets has been very interesting.

Low beta stocks are largely the best performers:

As expected, Materials, Financials and Industrials are dominating the picture.

On the other hand, Technology, Communications and Energy are all struggling quite a lot.

But why?

As explored in our recent piece on Stock Indexes, lower debt-costs for highly leveraged industries are getting a strong fundamental boost from lower rates.

They will be able to finance their debt at much lower costs, boosting their expected profit margins.

Metals are non-yielding assets, and are considered as diversification holdings.

Hence, when rates go down, the Opportunity cost of holding metals goes down.

Bonds also tend to see higher demand when interest rates go down.

But why are metals, particularly Silver, significantly outpacing Bonds and other assets?

This connects to the Debasement Trade theme, where governmental assets see a much lesser demand compared to finite assets – When the Trump Administration scares Markets with less international trade, and a generally weaker Dollar, Metals grab a lot of interest.

Gold for example has been accumulated by Central Banks (particularly China) as they aim to diversify their Reserves from their US Treasury majority, before seen as the ultimate Safe-Haven.

More on this right here.

So Silver actually combines both the criteria of Safe-Haven metal, boosted by the Fed Cut and gets another push from higher demand for industrial production.

Serendipitous conditions for the metal to keep pushing higher.

The Squeeze is immense, but still, be careful of some targets potentially being attained soon – Since I began to write this piece, XAG/USD pulled back somewhat (but still remains much higher than before the Fed).

Safe Trades!

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