FX.co ★ Analysts expect upcoming correction in US stock market

Last week, the US stock market closed at new highs despite some fears on its decline. The Dow Jones and the NASDAQ Composite rose by 0.1%, while the S&P 500 index increased by 0.16%.

The main news at the weekend was the fall of Kabul and the capture of Afghanistan's capital city Kabul by the Taliban. The embassies of Western countries were evacuated. The US sent helicopters to evacuate diplomats from its embassy. This has been a complete failure of all US efforts in Afghanistan for many years and a public humiliation of the world's strongest power. However, the US withdrawal from Afghanistan undoubtedly saved many thousands of American soldiers' lives. Despite the huge importance of this event for this region, it is rather positive for the US economy and market.

Why did the US decide to withdraw from Afghanistan after all? It is enough to find the United States and Afghanistan on the globe to understand that Afghanistan is the headache of those countries that claim leadership and rivalry with the United States – China, Russia and, probably, Turkey. So, the US seemed just to shift responsibility to these countries.

As for the commodity market, oil prices are still declining due to the negative consequences of the third wave of the coronavirus. Brent crude failed to consolidate above $70 and dropped to 69.70, losing 1% approximately today.

China's stock market managed to increase by 0.1%, while Japan's stock market shed 1.7%.

China's weak economic data for July also affected market sentiment. Retail sales jumped by 8.5% while economists had forecast 11.5%. Industrial production added 6.4% versus the forecast value of 7.8%.

The coronavirus still poses a threat to the global economy. The spread of a new contagious Delta strain carries great risks mostly for China.

As the third wave is raging worldwide, the number of new cases approached the highs. Yesterday, there was a decrease to 470,000 cases. However, this may be a decline over the weekend as happened many times. In the US, there was a drop to 30,000 new cases yesterday. In the UK, France, and Russia there was a decrease by 21,000 new cases yesterday. Notably, in Russia, there was a summer seasonal drop in new coronavirus cases.

The S&P 500 index is trading at 4.468. It is likely to stay in the range of 4.430-4.480. Currently, experts are widely discussing the possibility of monetary policy tightening by many central banks. On Wednesday, the FOMC Meeting minutes will be released. Investors are sure to study them for hints about the timing of the tapering of the bong-buying program. Currently, the Fed injects $120 billion into the economy and markets per month. On Wednesday, the central bank of New Zealand is expected to raise the interest rate after a buoyant recovery of the economy and the labor market. On Tuesday, investors will be anticipating US retail sales report for July. The reading is projected to decrease by -0.2% after an increase of 0.6% in June.

The US dollar index is trading at 92.50. It is likely to remain in the range of 92.20–92.80. The US dollar fell sharply and unexpectedly on Friday. Probably, traders were disappointed with the Fed's decision to keep monetary policy unchanged.

The USD/CAD pair is trading at 1.2540. It is likely to stay in the range of 1.2480-1.2600. The US dollar is holding firm against the Canadian dollar despite the general decline. The greenback has not lost momentum thanks to falling oil prices.

Investors are anticipating a big correction in the US stock market, which may start at any time and may be trigged by any econimc report.