Major US stock market indices such as Dow Jones, NASDAQ and S&P 50 closed Friday with new declines and are still trading around their local lows. As expected, the US stock market remains under pressure due to several factors. Firstly, there is the highest probability of a key Fed rate hike as early as this week. Secondly, there is the difficult geopolitical situation in Ukraine. The third is the complete withdrawal of the Fed's monetary stimulus programme. These factors can put pressure on the stock market for a very long time. Let's take a closer look at them.
Rumours that the Fed is embarking on a whole course of key rate hikes have been circulating for about half a year now. At first there were 3 to 4 rate hikes. Now it is already talking about 5-7 rate hikes. Inflation in America continues to rise, which leads to an increase in expectations of monetary policy tightening. However, at the moment the Fed has not yet raised interest rates even once and inflation has climbed to 7.9%. All in all, it turns out that there is not much of a rush anymore. The markets were scared when inflation was 4-5%. However, now they have calmed down. Inflation has already broken 40-year records, so there is no point in worrying.
In Ukraine, however, the situation has not changed over the weekend. Military action continues. There are several reports that Moscow may bring in Belarusian troops, as well as contractors from Syria and China, to put more pressure on Ukraine. Russian troops, with what initially appeared to be an impressive force, succeeded in capturing only Kharkiv. However, China immediately denied reports that Russia had requested military assistance, but contract servicemen from Syria and conscripts from Belarus may come. We can now say with absolute certainty that Russian troops are stuck at the outskirts of many Ukrainian cities and are unable to advance further. Thus, this conflict will drag on for at least a few months and could turn into something like Donbass, where the war has been going on for eight years.
Well, with the Fed's withdrawal of its stimulus programme, money stopped pouring into the stock market or the cryptocurrency market. Notably, the US stock market and cryptocurrency market showed very strong growth during the pandemic, which just coincided with a period of ultra-low interest rates around the world as well as trillions of dollars of money printed by central banks. These times are now coming to an end and times of monetary tightening are approaching. Tightening always leads to a cooling of the economy and a reduction in risky assets.