FX.co ★ US stock market likely to rebound

The global epidemiological situation as of January 24

S&P 500

The US market has shown its biggest weekly drop in 1.5 years. Correction is still in progress.

Major US market indices ended lower on Friday: the Dow Jones Industrial Average lost 1.3%, the NASDAQ Composite fell by 2.7%, while the S&P 500 dropped by 1.9%.

As you can see, the leaders of the current economic cycle - technology stocks - again outstripped the entire market in terms of the pace of a decline. This is a sign of market fatigue, the last stage of the cycle when the leading stocks show heavy losses.

Asian markets kicked off the week with minimal changes: China's index lost 0.1%, Japan's index added 0.2%.

Energy market. Oil is trading at 5-year highs, Brent crude is valued at $88.50. Oil prices remain strong, ignoring a strong decline in the US stock market. Gas prices in Europe have fallen from December highs but are still trading at high levels of $800-900 per thousand cubic meters. The gas crisis has entered another phase - Gazprom keeps delivering minimal gas volumes, probably putting pressure on Europe in order to push through the launch of the Nord Stream 2 pipeline.

The epidemiological situation. Yesterday, the number of new coronavirus cases in the United States increased by 2.2 million. At the end of last week, the indicator reached its high, showing about 3 million per day. On weekends, US statistics reported a decline. France and India posted 300,000 new infections each. At the same time, the mortality rate remains at relatively low pre-jmicron levels posted in October-December. Russia recorded 65,000 new cases yesterday. The number of new infections in the country is expected to increase to 150,000-200,000 per day in the next 10 days.

S&P 500: 4,398. Trading range: 4,380 - 4,440. The US stock market is expected to make a strong rebound today.

The main US index has been falling for the last 4 sessions in a row. Since January 15, the S&P 500 index has lost 6%. This decline is seen as a correction but a rather significant one, provided that the economy is not suffering any crisis yet. The indicator came close to the 50-day moving average. This means that it is possible to go long. At the opening of the current session, the S&P 500 index was trading 9% below the level posted at the beginning of the year. Even if the index closes the year with zero growth, investors who have bought the index today will have a profit of 9%, well above bank interest. Investors tried to start buying all the days of the fall - the market kicked off every day with gains - but then large institutions used that growth for major sales. However, it seems that the index is currently near long-term lows.

According to the media, due to the major omicron outbreak and labor shortages, the United States has problems with food supply chains, which could push inflation in January. The new inflation report for December - the PCE price index - will be released this Friday. The week's macroeconomic calendar also includes the Fed's decision on interest rates to be announced on Wednesday. On Thursday, the first report on US GDP for the 4th quarter will be published. Real gross domestic product is expected to increase at an annual rate of 5.6% against 2.3% in the third quarter.

USDX: 95.70. Trading range: 95.40 - 96.00. The dollar index remained unchanged amid a strong fall in stock indices. Dollar traders are awaiting the Fed's decision on its further monetary policy. Thus, a wave of dollar growth is likely to follow this news.

USD/CAD: 1.2580. Trading range: 1.2510 - 1.2680. Oddly enough, the pair ignored higher oil prices and rebounded strongly from the lows. This may well indicate a further rise in the US dollar.

Conclusion: the US market is expected to complete its strong correction and edge higher in the coming days, or probably today.