Last week, the Federal Reserve announced a 25-basis-point interest rate cut, bringing the target range to 4.00%-4.25%. However, the market reaction was complex. After experiencing significant intraday volatility, stock markets closed mixed. Particularly alarming is the fact that gold, historically a hedge against market stress, is now rising in sync with stocks, tech shares, and even Bitcoin. The price of gold hit a record high, and the Gold Miners ETF (GDX) has surged nearly 100% from its low, showing a typical “parabolic” rise indicative of speculative sentiment deeply infiltrating this traditional defensive asset. When FOMO (Fear Of Missing Out) sweeps across the market, the speculative frenzy is no longer confined to risk assets like tech stocks but has spread to traditional safe havens such as gold and gold ETFs.
From a technical perspective, the S&P 500 closed at 6652 points, trading two standard deviations above its 50-day moving average, while market breadth continues to deteriorate. When all asset classes rise feverishly in unison, it often signals that risks are accumulating, potentially leading to a breakdown in some part of the system and triggering a sharp decline. This rate cut marks the Fed’s first interest rate adjustment in 2025. The policy statement emphasized that “downside risks to employment have increased,” signaling a shift in focus from inflation control towards supporting employment. The market reacted cautiously, and a stronger US Dollar also indicates investor skepticism about the Fed’s ability to precisely balance its policies.
Technical indicators further reveal the FOMO sentiment in the market. A Goldman Sachs report showed that zero-day-to-expiry (0DTE) options trading accounted for 66% of total US stock trading volume in the third quarter, a significant jump from 31% in 2019, reflecting a frenzy of retail investor participation. Meanwhile, the VIX volatility index remains at historically low levels. While this supports a “buy-the-dip” mentality, it also implies that the market has very little room for error. Although tech stocks are driving the indices higher, the negative divergence in market breadth remains a concern, as such conditions have historically often preceded short-term corrections.
The artificial intelligence boom continues to fuel valuation bubbles in tech stocks. Strong earnings from leading companies like Nvidia and Microsoft have led to continuously rising market expectations, with analysts revising quarterly earnings estimates for the S&P 500 to record levels.
The unusual activity in gold and gold miners’ stocks is particularly noteworthy. Gold has traditionally served as a hedge against market stress, inflation, or currency depreciation, but this year it has moved higher alongside risk assets, an extremely unusual correlation. The record gold price is driven by central bank purchases, geopolitical uncertainty, and a weaker US Dollar, with support also coming from lower real yields and inflation expectations. A broader concern is that if risk appetite recedes, gold-related assets could be sold off alongside stocks, leaving investors without their traditional portfolio hedge.
