The key indices of the US stock market – Dow Jones, NASDAQ, and S&P 500 – ended Monday with a significant decline. Recall that over the past few weeks, we have observed the growth of all key indices and stocks and considered it paradoxical. The fact is that even if the Fed slows down the pace of raising the key rate, we are still talking about tightening monetary policy over the next six months, at least. It turns out that the rate is still growing at a fairly high rate, but at the same time, the US stock market is also growing, which is a paradox. One could assume that the market is waiting for the end of the rate hike cycle, but in this case, it began to work out this factor six months before its execution, which is quite strange and very early. Therefore, we concluded that we were dealing with a very strong and illogical correction, after which the "bearish" trend would resume. Thus, the fall of stock indices in the last couple of days may be the beginning of a new round of decline, during which local lows will be updated. We also said that the growth of the US stock market could be a banal trap for buyers. This trap aims to artificially raise indices and stocks as high as possible to sell them at the most favorable price. So far, we believe that this option is being implemented.
Meanwhile, this week's key event will be Jerome Powell's speech at Jackson Hole, where the annual symposium will be held. In principle, this event is called the main event only because there are practically no other events planned for this week. It will be a simple performance by Powell, unlikely to differ from the previous ones. Most likely, the head of the Fed will again declare his readiness to tighten monetary policy until inflation shows a significant slowdown every month and begins to approach the target level. Again, the Fed will raise the rate further, and a step equal to 0.5% is still considered very "hawkish." So far, we have seen only one slowdown in inflation, which is not enough to conclude that this indicator has started a downward trend. The next report will be released in September, just a week before the Fed meeting. Perhaps, after this report, Powell and the company would have changed their rhetoric, but it's too early to draw loud conclusions now. Therefore, we believe that the rhetoric of the head of the Fed will not change, which means we will not hear anything new. The stock market, meanwhile, has already started to fall and, most likely, will not wait for Powell's speech. We expect that the price drop will continue in the coming weeks.