As US stock markets indexes continue to fall, it looks more like a long-term correction and not a regular retracement. Taking into account all expert warnings about a forming stock market bubble, the bursting is going to happen sooner or later. The trillions of dollars pumped into the economy by the Federal Reserve could not only result in high inflation. Yesterday, the NASDAQ lost 500 points in its biggest decline in months, while the S&P 500 fell by almost 100 points and the Dow Jones slumped by 500 points. This strong momentum could indicate an equity sell-off.
The slump is likely connected to Jerome Powell's recent statements. When the Fed chairman called the current period of high inflation "transitory", because it was unclear when it would end, the markets interpreted it as a signal for imminent monetary tightening at the next Fed meetings. The Federal Reserve's monetary stimulus boosted the stock market, but now investors begin to turn away from risky assets, from equities to cryptocurrencies like bitcoin. Powell's hawkish statement on Tuesday negated several months of potential growth of stock market indexes. Now, it is possible the Fed could accelerate QE tapering in December by an estimated $30 billion per month. While high inflation is a positive factor for equities, a real threat of monetary tightening would make investors dump risky assets. It is likely that US stock market indexes and the bitcoin would decline further. The upcoming US non-farm payrolls data would indicate the impact of the fourth wave of the COVID-19 pandemic and the new Omicron strain on the recovery of the American labor market.
