SignalPlus Macro Analysis: Goldman Sachs Predicts the Federal Reserve Will Cut Interest Rates for the First Time in June

The market maintained a risk-on sentiment last Friday, with China's 10-year government bond yield hitting a 20-year low. The European fixed income market rose under the support of dovish comments from the European Central Bank, and despite a large supply of bonds, the investment demand for new bonds remained quite good.

Sell-side economists have been revising up their forecasts for U.S. economic growth, generally believing that the likelihood of a recession has dropped to below 40%, with the median forecast for economic growth in 2024 at 2.1%. Additionally, due to strong economic data, Goldman Sachs has officially pushed back its forecast for the Federal Reserve's first rate cut to June, although they still expect the terminal rate to drop to around 3.25-3.5%.

The technology sector lagged slightly last Friday due to profit-taking after experiencing remarkable gains, but the stock market remained near historical highs. Both hedge funds and mutual funds have held significant stock exposure since the beginning of the year, resulting in outstanding performance for both active and passive fund managers so far this year.

Corporate earnings continue to recover, with profits expected to keep growing into 2025. 36% of S&P companies mentioned "AI" during their quarterly earnings calls, a theme that continues to drive profits and market sentiment.

In the cryptocurrency space, prices have also stabilized after a recent rebound, although the overall mainstream narrative continues to improve. Reddit recently announced in its S-1 (IPO) filing that it has invested some excess cash in BTC and ETH, and it expects to continue using them to pay for certain virtual goods in the future.

Meanwhile, retail participation continues to improve, with JPM reporting that inflows into small wallets (i.e., retail) are larger compared to large institutional wallets. The net purchases of Bitcoin on retail platforms such as Block, PayPal, and Robinhood also rebounded in 2023, while Coinbase's Q4 2023 earnings report showed an increase in trading activity from both institutions and retail investors.