The primary indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - closed Tuesday with a substantial increase. We cannot assume that the construction of the downward trend has been completed, yet, the correction against this trend continues. It is also impossible to say how far the three indices can go up, as currently, a lot depends on the mindset of traders. We do not doubt one thing - the slide of the US stock market in 2022 will continue. This is indicated by the Fed's plan to continue hiking the rate at a record pace and the QT (quantitative tightening) program that began on July 1. These two factors can lead to a loss of at least another 20 percent for each index. A further drop will depend on whether the Fed raises the rate above the target level. Recall that many FOMC members have consistently talked about the 3.5 percent rate. However, if the Fed tightens monetary policy at the same pace as presently, this rate level will be achieved in 3 months. And the rate of rate hike depends on the rate of inflation, which has not yet responded at all to the Fed's efforts. It turns out that 3.5 percent may well not be enough. And if the rate climbs considerably more, we can predict that the US market would collapse even lower.
So yet, just one solid fact testifies in favor of the notion that the rate would grow to more than 3.5 percent. St. Louis Fed Chairman James Bullard, the most aggressive "hawk" in the monetary committee, started talking about 4 percent. Literally, one or two members of the Fed backed him, but at the same time, we did not hear the statements of all functionaries, so we cannot tell the viewpoint of everyone. Regarding the rate rise next week, the problem is likewise basically closed. Most FOMC members do not support a 1.00 percent increase. Thus the US stock market could start new growth. Yes, in 2022, this is a growth element for the stock market: not hiking the rate by 1.00 percent. Thus, we should now wait for the Fed meeting, see the rate raised by 0.75 percent and live and sleep peacefully for the next month and a half. As for a probable recession, today, the possibility of its development in the next two years is from 35 to 50 percent. It isn't easy to judge whether this is a lot or a little, but so far, the American authorities have ensured that it will be avoided even if the rate climbs to 3.5 percent. In general, the key factor was inflation, and it remains so.