The key indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - ended Wednesday with minimal growth. Recall that indices and many market stocks are now in the stage of global correction and we have repeatedly said that the current price positions are far from the limit of the fall. As arguments, we said that the Fed does not intend to end the cycle of tightening monetary policy in the near future, so rates will continue to rise, and the money supply will only begin to shrink from July 1. Consequently, the pressure on risky assets will continue. We talked about this a few months ago. Now our opinion is confirmed by some expert economists.
In particular, Vicki Chang, who is an analyst at Goldman Sachs, notes that since 1950, the S&P 500 index has fallen by more than 15% 17 times and in 11 of these cases recovery began when the Fed began to lower the rate. The Wall Street Journal also focuses on the fact that the Fed has just started raising the rate, which means that the stock market growth cannot be expected in the near future. According to the magazine, the American economy is on the verge of recession, as already indicated by the latest statistics, which indicate a deterioration in the state of things in the industry, construction, consumer sentiment, and retail sales. Some experts believe that the decline in indices and stocks will slow down, but there is no reason to assume that the market has reached the "bottom". Recall also that in most cases, upon reaching the "day", investors or traders begin to actively open positions in the opposite direction, which leads to a strong and sharp counter-trend movement. Now, nothing like this is observed, since the key indices continue to be located very close to their local lows.
Syz Bank investment Director Charles-Henry Monchau believes that the Fed may go for a larger or faster rate hike if inflation continues to remain high. In the meantime, that's exactly what we're seeing. If the rates rise even higher, it could be a shock to the stock market, and it could accelerate its decline. There is, however, the reverse side of the coin. The faster and stronger the Fed rate increases, the less time the entire period of monetary policy tightening will take. Recall that James Bullard, the head of the St. Louis Federal Reserve, insisted on this option, who believes that rates should be brought up to 3.5% this year to be able to lower them slowly next year. It seems that everything is going to implement the "Bullard plan", which means that the stock market will survive more than one "rainy day" this year.