When the Fed signals a rate cut, financial markets often boil over quickly, and investors cheer for the arrival of a bull run. The reason behind this phenomenon is actually quite simple: the cost of funds decreases, and idle funds begin to seek higher returns.

A rate cut means that bank deposit interest rates become negligible, even unable to withstand inflation. A large amount of funds, therefore, are not content to quietly sit in bank accounts, but are actively seeking investment opportunities that can bring higher returns.

In the United States, manufacturing is no longer a major economic pillar, making it difficult to absorb such massive amounts of capital. As a result, the U.S. stock market has become the primary stage for accommodating these enormous funds. The characteristics of the U.S. stock market are: the larger the capital, the stronger the upward momentum, which in turn brings more paper wealth. This wealth effect will attract more funds to flow in, creating a virtuous cycle: capital drives the market, the market attracts capital, and ultimately fosters a strong bull run atmosphere.

The cryptocurrency market, although lacking solid fundamental support, is highly dependent on capital flow and market sentiment. When the US stock market strengthens, speculative funds tend to flood into the cryptocurrency market, driving its prices up.

In contrast, during the period of interest rate hikes, due to higher bank deposit rates, investors tend to deposit their funds in banks for stable returns rather than taking risks by investing in the stock market or cryptocurrencies. This leads to a flow of funds back into the banking system, resulting in a 'lack of liquidity' phenomenon in the stock and cryptocurrency markets.

In recent years, despite multiple interest rate hikes by the Fed, the US stock market has continued to rise, a phenomenon that seems counterintuitive. In reality, this is because the US Treasury has been re-injecting funds into the market by issuing government bonds, offsetting the impact of the rate hikes. Although this approach appears contradictory, it is actually a legitimate operation within the US financial system.

The purpose of this operation is twofold: externally, to attract the return of dollars by raising interest rates, causing liquidity tightening in other countries; internally, to maintain domestic liquidity by issuing government bonds, avoiding excessive impact on the domestic economy.

Therefore, when the market hears news of interest rate cuts, investors generally feel excited because it means lower capital costs and more abundant liquidity. Ample funds will inevitably seek various investment opportunities that may yield returns, whether in the stock market, cryptocurrencies, gold, or commodities; wherever the funds flow, there is likely to be a price increase.

This is why the underlying logic of 'Fed rate cuts' is often equated with 'bull run coming'. Investors who can accurately grasp this market rhythm often have a greater chance of obtaining substantial investment returns.