The Side of Rate Cuts Nobody Is Telling You About
Macro is often an intimidating term for retail investors, as it encompasses everything from interest rates to inflation, employment, and global capital flows. However, macroeconomic forces are the true drivers behind every major market cycle.
Not Federal Reserve (the Fed) rate cuts or hikes, not earnings—its macro that determines whether industries soar or stumble.
Today, the macro picture is a bit confusing, as it is a mix of 2019 and 1974: softening economic data, rising inflation, and increasing unemployment. This current setup could easily turn into that scary word— stagflation—where high inflation with low economic growth squeezes consumers even further and creates a new super cycle.
This is why it's important that investors look outside of equities, especially the tech sector, toward other asset classes like bonds, gold, and even Bitcoin, which could provide the diversity needed to weather the storm.
The Market Is Screaming Inflation—Are You Listening?
If you're watching the charts, the message is loud: the U.S. dollar index is at a 52-week low, a clear sign that markets expect inflation to come roaring back. In fact, the latest CPI readings point to the United States trending close to 3% inflation again, far from the Fed’s preferred target of 2%.
At the same time, gold just keeps hitting new all-time highs, as is expected when the dollar weakens and inflation climbs. And then there's Bitcoin, long debated as a digital inflation hedge, now behaving more and more like the real thing.
The bigger shock? The S&P 500 is also near record highs—an unusual divergence from traditional macro behavior. Normally, sustained inflation eats into corporate margins and valuations. So, how can markets rally in the face of these headwinds?
Now that the Fed has cut interest rates, chances are that a blow-off top rally across all asset classes will occur before the real consequences of inflation and weakening growth hit home.
Real Assets Are Primed for a Super Cycle
Cutting rates in an inflationary environment often triggers a super cycle in real assets like gold, silver, real estate, and industrial metals. We’re already seeing this play out as rare earth companies like MP Materials Corp. (NYSE: MP) are on the move.
And Bitcoin is likely to follow as rate cuts devalue fiat currencies and push investors toward alternatives. One such company positioned to benefit is Bitcoin miner CleanSpark Inc. (NASDAQ: CLSK). With Wall Street analysts assigning a $20.50 price target, implying a potential 83% upside, CleanSpark could be a high-leverage way to ride this trend.
Bonds: The Silent Warning
Recent market momentum has favored gold and other metals, Bitcoin, and technology stocks, while most other sectors have lagged behind. Underpinning these moves, however, is the influence of the bond market, which continues to shape broader investor behavior.
Bonds typically move ahead of inflation expectations, since their prices are inversely related to yields, and yields often are attached to inflation expectations.
Today, the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) is trading at only 90% of its 52-week high with a year-to-date (YTD) performance of just 3.5%. This means that the bond market isn’t convinced that rate cuts will lower yields. Instead, it sees something worse: inflation accelerating because of the cuts, not in spite of them. That’s a red flag for investors.
What Happens Next?
If the bond market is right, gold could easily surge past $4,000 per ounce. Bitcoin could smash through new all-time highs and deliver that CleanSpark upside. And equities, especially outside tech, could hit a wall because high inflation eventually suffocates growth and erodes valuations—even in a lower interest rate environment.
Learn more about CLSK
