JPMorgan warns: After the rate cut in September, there may be a retracement, with gold becoming the best hedge option.

JPMorgan's trading department has issued a warning that after the Federal Reserve (FED) cuts interest rates on September 17, the market may experience a “buy the rumor, sell the news” pullback. The bank noted that although the probability of a 25 basis point cut is as high as 87%, and market sentiment is leaning towards optimism, there is a possibility of profit-taking and selling pressure in the short term.

Expectations for interest rate cuts are rising, the market may experience a “rise first and then fall” scenario

Interest rate cut probability: Data from Kalshi and Polymarket show that the probability of a 25 basis point cut is about 87%.

Background factors: Last week's weak U.S. labor data reinforced market expectations for interest rate cuts to stimulate the economy.

Risk Warning: The S&P 500 has rebounded over 30% since April, mainly driven by technology stocks. The rapid short-term increase may trigger a pullback.

Morgan Stanley's hedging advice

JPMorgan suggests that investors can hedge potential risks through the following methods:

VIX Call Options: Profit from market volatility using volatility index options.

Golden allocation: Gold prices have broken through $3,640, setting a new historical high, highlighting its hedging attributes.

The bank also pointed out that although there is a risk of a pullback in the short term, the market may still continue its upward trend in the days following the rate cut due to a decrease in the likelihood of an economic recession.

The correlation effect of the cryptocurrency market

In recent months, the cryptocurrency market has been highly correlated with the US stock market.

Regulatory Favor: The U.S. regulatory framework is gradually becoming clearer, attracting more institutional capital to enter the market.

Political uncertainty: The uncertainty of the midterm elections may still affect market sentiment.

Bitcoin and Gold Correlation: After Gold Prices Hit New Highs, Bitcoin is Expected to Follow Suit.

Bitcoin Mid-term Outlook

JPMorgan analysts believe that Bitcoin is still undervalued relative to gold:

Medium-term target price: $126,000

Bullish factors: Institutional investors accelerating adoption, expectations for approval of spot cryptocurrency ETFs heating up.

Market sentiment: The bullish sentiment for Bitcoin and the overall cryptocurrency market continues to strengthen.

Conclusion

JPMorgan's perspective reminds investors that interest rate cuts are not solely beneficial; the short-term market may experience pullbacks due to profit-taking. Against this backdrop, gold and VIX options have become the preferred hedging tools, while Bitcoin is expected to benefit in the medium term from the rising trend of gold and inflows of institutional funds. For investors, flexibly adjusting asset allocations and simultaneously paying attention to the interconnections between traditional and crypto markets will be key strategies for coping with future volatility.