The key indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - ended Monday with another collapse. All three indices have updated their previous local lows, so the global correction is currently continuing. In principle, all the factors that pushed the stock market down earlier continue to work now. We have repeatedly said that at this time the Fed has embarked on a global tightening of monetary policy and a reduction in the money supply to reduce inflation to the target of 2%. However, so far, it is not even possible to stop the acceleration of price growth. And the rate is already growing. That is, conditions in the markets of risky assets are deteriorating, respectively, and the demand for these risky assets is falling. Therefore, it is certain that as long as the Fed raises the rate and the QT program works, risky assets (stocks, stock indices, cryptocurrencies) will be at risk. By the way, this is exactly what we are seeing at the moment: the cryptocurrency market "flew away and did not even promise to return," Apple shares fell by 30%, Microsoft - by 30%, and Tesla - by 30%. But the yield on US Treasury bonds is growing. And if the profitability is growing, then the demand for them is also growing. Therefore, it is absolutely clear and understandable from which markets and to which the money supply is now flowing.
Monday was also marked by the fact that the probability that the Fed will raise the rate by 0.75% immediately on Wednesday has sharply increased. This was stated yesterday by the experts of Barclays Bank, and today this assumption was supported by several other well-known experts. In principle, the markets are now even set up for a "surprise" from the Fed, since, as we have already said, inflation continues to rise, no matter what. If it continues to ignore all the actions of the Fed, then it is necessary to tighten these very actions. Therefore, a stronger rate increase is quite a logical development. Now the following options are possible. On Wednesday, the FOMC will indeed raise the rate by 0.75%. Most likely, the markets have already won back this increase, because not only the stock and cryptocurrency are increasing, but also the US dollar has strengthened very seriously in the foreign exchange market over the past three trading days. Therefore, we may not see new growth in the dollar and a fall in the stock market. But if the rate is raised, as planned, by 0.5%, it may even greatly disappoint the markets, and they will begin to reverse the actions that they have been taking in the last few days. That is, the Fed may raise the rate by 0.5%, while the dollar will fall, US stock indexes and stocks will rise. In any case, a very volatile environment awaits us, and the global correction in the US stock market will continue any case, no matter what decision the Fed makes.