The financial markets experienced a sharp sell-off last Friday as concerns over inflation and trade tensions sent stocks tumbling. Wall Street struggled with renewed inflation pressures, while uncertainty surrounding tariffs contributed to heightened volatility.
Stock Market Sell-Off: Key Drivers
The Dow Jones Industrial Average fell 1.6%, shedding over 700 points. The S&P 500 dropped 2%, and the Nasdaq led the declines with a 2.7% loss. Tech stocks were among the hardest hit, with major players like Apple AAPL, Microsoft MSFT, and Amazon AMZN suffering hefty declines.
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The sell off was triggered in part by a hotter-than-expected personal consumption expenditures index report, which showed core inflation rising 0.4% month-over-month and 2.8% year-over-year. This stubborn inflationary trend remains a concern for the Federal Reserve, which has targeted a 2% inflation goal.
Further exacerbating market volatility, U.S. consumer sentiment for March dropped to 57, its lowest reading since November 2022, according to the University of Michigan. Investors also reacted negatively to escalating trade tensions, with President
Donald Trump reaffirming his commitment to tariffs, particularly targeting foreign auto imports. The Federal Reserve Bank of Atlanta’s GDPNow index forecasted a 2.8% decline in U.S. GDP for Q1, raising concerns about slowing economic growth.
The market rout was widespread, with the S&P 500 falling 1.87% to 5,587.11 points, the Nasdaq dropping 2.51% to 17,357.64 points, and the Dow slipping 1.62% to 41,612.69 points. Interest rate futures suggest a 76% likelihood that the Fed will cut interest rates by 25 basis points by June, according to CME FedWatch Tool.
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Bitcoin and Crypto Market Performance
Amid Wall Street’s downturn, Bitcoin also faced downward pressure, dropping 3.91% as of writing. The broader altcoin market, including Ethereum, saw an even sharper decline of 4.75%. While the stock market’s decline was largely attributed to inflation concerns and trade-related uncertainties, the crypto market’s drop reflects broader risk-off sentiment among investors.
However, Bitcoin’s ability to hold key support levels in the coming days will be crucial in determining whether it can decouple from traditional markets and demonstrate strength.
Historically, Bitcoin has shown resilience following sharp corrections in equities, often rebounding faster than traditional assets. However, on the flip side, it has also experienced sell-offs before the stock market.
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Looking Ahead: Will Bitcoin Hold Up?
When we look at relative strength, Bitcoin has held up fairly well during the downturn in U.S. equities.
In early November, when Trump won the election, all risk-on markets saw major rallies, especially crypto, as Trump has shown he is pro-crypto. Since then, the S&P 500 has retraced the “Trump Rally” and is now trading below the November lows, while Bitcoin remains above its election low.
The average investor or trader should know that Bitcoin has historically traded in tandem with other risk-on markets. However, it was originally created in response to the 2008 financial crisis as a decentralized alternative to the traditional banking system.
The question now is whether we will see a shift in that paradigm, with Bitcoin proving to be a true hedge in times of economic uncertainty.
There is historical evidence to support the idea that Bitcoin experiences strong reversals or bounces before the stock market.
A more recent example of this current strength in Bitcoin can be shown by the low that formed on the March 11th candle bar.
This was the ultimate low on Bitcoin as the S&P made a lower low on March 13th.
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Finishing Up
Bitcoin has demonstrated notable strength compared to the stock market during this downturn.
However, that doesn’t mean it can’t go lower.
If equities continue to struggle, Bitcoin could follow the same trend, as seen historically. But as long as Bitcoin remains above its election low, it has the potential to maintain its current strength and could see sharp rallies if equities consolidate or pause in the coming weeks.
Monitoring key support levels and market structure will be crucial as we navigate this volatile period.
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