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September Alpha Report Recap
October 8, 2024
Key Takeaways
*All data is as of September 30th, 2024
Market Performance
As of September 30th, 2024, the Standard and Poor’s 500 (“S&p 500”) rose 2.02% and +34,37% in the past month and on an annual basis, respectively. Bitcoin (“BTC”) rose 9.96% and +133.91% in the past month and on an annual basis, respectively. The recent upturn is primarily attributed to the latest and projected interest rate cuts by central banks, both domestically and internationally.
The U.S. Treasury 10-year rate fell 9.3 basis points over the past month. September yielded a -0.74% monthly loss in the US Dollar. Dow Jones, U.S. High-Yield, U.S. Investment Grade, and gold changed by +1.85%, +1.56%%, +1.7%, and 5.34% over the last month, respectively.
As of September 30th, 2024, Bitcoin (“BTC) and Ethereum (“ETH”) gained 9.96% and 7.21% on a monthly basis, respectively. These returns are reflected in our Risk-Adjusted Portfolios (“RAP”) given their dominance in the marketplace. Sentiment and performance in the digital asset market (as proxied by BTC and ETH) has shifted from neutral to bullish recently, driven by an increase in global liquidity stemming from numerous interest rate cuts by major central banks. Projections indicate that more cuts are likely in 2024 and early 2025.
The macro backdrop has strengthened in our Investment Team’s purview. We still believe the next 6-12 months to be constructive for risky assets (see ‘Outlook’ below). While two concurrent geopolitical conflicts remain a risk to the global economy and financial markets, effects appear to be currently limited to specific locales and assets. The primary near-term catalysts appear to be the continued success and proliferation of spot ETFs, domestic and abroad, increasing global liquidity, and cyclicality of crypto markets in accordance with Halving cycles. The Team remains mid-long term constructive on BTC and the digital asset market as a whole in 2024 and the beginning of 2025.
Portfolio Performance
Cumulative returns across the three RAP (Balanced, Strategic, and Opportunistic) portfolios ranged from +66.86% to +90.87% for the period starting July 18th, 2023 through September 30th, 2024. This compares to a +27.36% return in the Standard and Poor’s 500 index (S&P500) over the same period (see image below).
Cumulative returns across the three RAP (Balanced, Strategic, and Opportunistic) portfolios ranged from +5.82% to +11.72% for the period starting September 1st, 2024 through September 30th, 2024. This compares to a +3.52% return in the Standard and Poor’s 500 index (S&P500) over the same period (see image below).
In the two images below, you will find the performance of all assets in Path’s RAP portfolios over the course of September 2024.
The main driver of recent RAP performance is attributed to the Investment Director’s discretionary views to remain fully allocated to risk-on assets for at least the remainder of 2024.
Although crypto markets experienced a stagnant summer trading period, historically dips are common around the Bitcoin halving and the most profitable periods of prior crypto cycles occurred 12-18 months after the halving. We are currently ~6 months post halving.
Market Events
Federal Reserve, European Union, and People’s Bank of China Begin Quantitative Easing
The Federal Reserve, the US central bank, for the first time in over four years, has cut interest rates by 0.5 percentage points to a target range of 4.75%-5%. Federal Reserve Chair Jerome Powell described the decision as necessary due to easing price rises and growing job market concerns. The cut, larger than expected, aims to alleviate high borrowing costs impacting US borrowers while maintaining a strong labor market. Despite the absence of significant economic issues, policymakers are proactively addressing potential risks. Recent projections indicate inflation may decrease faster, with unemployment expected to rise to 4.4% by the end of 2024. Overall, the US economy grew at an annual rate of 3% in the last quarter, with resilient retail spending.
The European Central Bank (ECB) cut interest rates by 25 basis points to 3.50% and indicated a "declining path" for borrowing costs as inflation slows and economic growth falters in the eurozone. ECB President Christine Lagarde emphasized a data-dependent approach to policy and suggested that further cuts would depend on economic conditions. While some policymakers express concerns about rising recession risks, others warn that underlying inflation pressures remain. New economic forecasts indicate slightly lower growth this year, with inflation expected to reach the 2% target by late 2025. Additionally, the ECB made a technical adjustment, reducing the refinancing rate by 60 basis points to 3.65%.
On September 27, China's central bank lowered interest rates and injected liquidity to support its economic growth target of around 5%. In response to economic challenges, including a property crisis and weak consumer confidence, the government plans to issue about 2 trillion yuan in special bonds as part of a new fiscal stimulus package. Major cities like Shanghai and Shenzhen are expected to ease home purchase restrictions. Despite strong deflationary pressures and recent disappointing economic data, analysts believe the new measures could help achieve growth targets, with Chinese stocks poised for their best week since 2008 on stimulus hopes.
Outlook
The coordinated actions of major central banks worldwide highlight their commitment to stimulating the economy through quantitative easing. Our Investment Team believes that this approach will enhance global liquidity, which has historically been linked to growth in risk-on sectors, such as digital assets.
In September, cryptocurrencies responded favorably to the adjustments made by the central banks mentioned earlier. Our team anticipates additional rate cuts extending through Q4 2024 and into 2025, which should provide the necessary liquidity to propel digital assets to new heights over the next 6 to 12 months, coinciding with historical halving events.