- Short-term drop in S&P 500 post-FOMC meeting
- Increased correlation between Bitcoin and stocks
- Bitcoin poised for Q4 gains
Bitcoin's price has recovered swiftly to $61,000 over the past 12 hours after the S&P 500 reached a new all-time high. The market is bracing for volatility ahead of the Federal Open Market Committee (FOMC) meeting and rate cut announcements that will likely impact both the U.S. stock market and the cryptocurrency industry.
Short-term drop in S&P 500 post-FOMC meeting
The S&P 500 index is considered a key indicator to understand the trend of the overall U.S. market. In June 2024, [it was valued](https://ycharts.com/indicators/sp_500_market_cap#:~:text=S%26P%20500%20Market%20Cap%20is,37.16T%20one%20year%20ago.) at $45.84 trillion. A day before the FOMC meeting, the index reached a new all-time high of 5670. Speculation suggests traders have priced in a 0.50 basis point or 0.5% rate cut. Historically, however, whenever interest rates have been slashed, the SPX index has experienced a short-term drop most of the time. Since 1984, the Federal Reserve has cut rates 10 times, and SPX's ROI during the 1-month period following the cuts has been negative 60% of the time. The previous two rate cuts in 2019 and 2020 also triggered immediate corrections.
Increased correlation between Bitcoin and stocks
Bitcoin and the S&P 500 index have witnessed strong correlation over the past few years, especially during the bull market in 2021. In Q1 2024, the correlation coefficient (CC) between Bitcoin and SPX was high as both reached new yearly highs. Currently, the correlation coefficient is rising back to high levels. The current correlation between Bitcoin and SPX is 0.88. This suggests that the assets are expected to move in tandem following the FOMC meeting. If SPX experiences a drawdown, Bitcoin is likely to follow as it has not broken its multi-month downtrend. Considering a BTC correction might follow the rate cut, the immediate target range is $54,000, where a CME futures gap was formed at the beginning of September. The drawdown could be deeper due to the macroeconomic event, potentially reaching previous lows at $48,880.
Bitcoin poised for Q4 gains
Despite the bearish scenario, this pertains solely to the short-term frame for Bitcoin and the S&P 500. As illustrated in the previous chart, SPX has registered positive returns over 3-month, 6-month, and 12-month periods whenever the markets have not navigated through a recession, as witnessed during 1990, 2001, and 2007. [Data](https://www.franklintempleton.com/insights/anatomy-of-a-recession) from Franklin Templeton suggests that the risk of a recession remains relatively low compared to March 2024, indicating that the U.S. economy is slowly improving in terms of consumer and business activity, as well as liquidity. Therefore, if a recession can be avoided, SPX should shrug off any short-term volatility from the rate cuts and continue its bull market. This would likely present a bullish scenario for risk-on assets such as Bitcoin in Q4.
Bitcoin's recovery to $61,000 is linked to S&P 500's record high and anticipation of the FOMC meeting results. Despite potential short-term corrections, long-term prospects remain positive if the U.S. economy avoids a recession.
