There have been mainly talks on rate hikes by the US Federal Reserve and the abandonment of monetary stimulus over the past few weeks. This is the number one topic both in the forex and US equity markets. The last two weeks show that market participants have finally started to take seriously the fact that the interest rate could be raised 4 times this year and the QE program may be abandoned already in March. Indeed, the American regulator has adopted a hawkish stance on monetary policy. Investors and traders have got used to the dovish Federal Reserve over the past two years. Therefore, they might be flabbergasted to see a change in the central bank's policy course. There is another point of view that says future tightening has not been priced in by the equity market yet. Although the main US stock indices have been bearish for two weeks, they are still hovering around their all-time highs. Therefore, a fall in the equity market could be more significant. Moreover, the Federal Reserve has not even started to really tighten policy. Above all else, the QE program is still operating, which means that the inflow of cash into the American economy continues. Nevertheless, stock indices have already started to go down.
Tech stocks and stocks that showed the best performance in the past two years are at the highest risk as they may tumble the most. Clearly, amid negative fundamentals, investors will begin to withdraw capital from the riskiest assets. Tesla and Apple show a spectacular increase in their stock value, which does not always correspond to their accrual growth, income, or production volumes. That is, their stock could be considered overbought and shares themselves to be speculative. From our point of view, they could fall the most compared with stable stocks of companies like Coca-cola. Experts assume that firms like Nvidia, whose stock grew mainly due to mounting interest in cryptocurrency mining, will suffer as well. After all, the cryptocurrency market may continue falling, thus reducing demand for mining equipment. At the same time, stocks of travel companies may rise in value despite monetary policy tightening. The tourism industry has been through tough times and is now ready to recover. Of course, it will be possible if only a new Covid strain does not emerge. The same goes for airline stocks and shares of other transportation companies. Due to constant lockdowns, many of them ended up on the verge of bankruptcy but were saved by government subsidies and loans. Overall, we expect 2022 to be a year of correction.
