Fed Rate Cut Optimism May Not Avert US Recession, Will Nvidia Fall Trigger Crash?

On Tuesday, the US Department of Justice (DOJ) sent a subpoena notice to Nvidia sending shockwaves on Wall Street and later on the broader crypto market. During yesterday’s fall, US equity investors lost $1 trillion with some hopes from the Fed rate cuts ahead this month in order to boost market liquidity. However, some market analysts argue that it may only offer temporary relief due to underlying weaknesses in the US economy and the looming US recession.

Fed Rate Cut Won’t Prevent US Recession

With just fifteen days left for the Fed rate cut cycle to begin, market analysts are pointing to historical charts to see what happened during the previous rate cuts. Market analyst Brett (@brett_eth) highlighted some similarities between the current economic environment and past interest rate-cut cycles from 1981, 1990, 2000, and 2007.

He added that the indicators of a rising unemployment rate along with the 10-year to 2-year yield curve inversion mirror similar trends from the past cycles. The optimism surrounding the Fed rate cut suggests that they could be beneficial for the market. However, Brett shows that history suggests a different development in the making.

Brett added that the market experiences a short-term boost, lasting around 25 days post-rate cuts, followed by an average 13-month downturn. He also added that the market might see one last rally around the upcoming rate cuts. On the other hand, the Bank of Japan plans rate hikes continuing with its hawkish monetary policy. This could put further pressure on the USD and eventually the US markets.

Will Nvidia Be the Catalyst for the Market Crash?

The Nvidia share price tanked 10% yesterday after the U.S. Department of Justice (DOJ) issued a subpoena for the chipmaker while taking further its anti-trust probe. The latest DOJ probe surrounds Nvidia’s dominance in the AI computing market with antitrust officials sharing concerns that the chipmaker is making it difficult for customers to switch to other suppliers.

Additionally, it implies that the chipmaker could be penalizing customers who don’t exclusively use its AI chips, thereby creating obstacles for competitors. Ahead of the 2000 tech bubble burst, the DOJ launched a similar antitrust probe with Microsoft, Thus, market analysts stated that the Nvidia subpoena could trigger the next US recession. Thus, it would be interesting to see whether the Fed rate cut could avoid this situation.

The catalyst that crashed markets in 2000 https://t.co/QsgsDGJI7H pic.twitter.com/w67GfkdHiB

— The Great Martis (@great_martis) September 3, 2024

A previous Business Insider reporter suggested that Microsoft is the mystery customer of Nvidia driving 19% of its sales. Well, if true, this won’t go well with the regulators.

The recent crypto market crash has led to strong Bitcoin liquidations with BTC price losing strong support and eyeing for a 75% correction ahead. On the other hand, Peter Schiff presented a chart showing a positive correlation between gold ETF holdings and the price of gold, indicating of a strong gold rally ahead in the making.

This graph shows the breakdown of the positive correlation between gold ETF holdings and the price of #gold. The breakdown stated in 2022 and really went negative starting in late 2023. It only recently turned back positive. This means the gold rally is about to gain momentum. pic.twitter.com/5xjee92FiX

— Peter Schiff (@PeterSchiff) September 3, 2024