The NASDAQ, the S&P 500, and the Dow Jones settled higher on Friday. US inflation, one of the most important macroeconomic reports, was also published on Friday. So, the annual inflation rate increased to 6.8% in November. Surprisingly, markets reacted to the results in a different way. In other words, amid rising inflation, the greenback used to strengthen and stock indices used to incur losses. This time, however, the situation reversed, and the dollar went down while stock indices started to rise. Thus, we can assume that markets no longer see growing consumer prices as a possibility of speeding up the winddown of the QE program in the upcoming FOMC meeting, as well as of earlier-than-planned interest rate hikes. Given that the consumer price index soared to its almost 40-year high, every further increase is unlikely to trigger market jitters. Market participants understand that the Federal Reserve will have to react to such unprecedented figures. Therefore, no matter whether inflation rises by 0.2% or 1.2% next month, it has already been high for a long time.
So, the stock market has entered a peculiar stage. The Federal Reserve is still pumping up cash into the economy, and some of it still ends up in the stock market. However, the regulator will no longer be supporting the economy by March-April. This could deliver a severe blow to all stocks and indices. After all, their rise in the past 18 months was fueled by the inflow of hundreds of billions of dollars into the economy. It is hardly possible that the regulator ends the QE program and the stock market continues to score gains. The fact that the NASDAQ, the S&P 500, and the Dow Jones showed considerable growth in the previous week makes us think why that happened. It seems that market participants are trying to go long for the last time before a correction. Many experts have repeatedly mentioned the presence of a bubble in the market They also said that the abandonment of stimulus would harm both the cryptocurrency market and the stock market. Although it still seems to be a good time to enter long positions, market participants should remember that the possibility of a collapse is too high.
