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FX.co ★ Stock market correction continues

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Forex Analysis:::2022-01-31T13:28:11

Stock market correction continues

Stock market correction continues

The last six trading days in the US stock market have been very turbulent. First the markets waited for the Fed meeting and expected to see the worst, but then faced a reality that turned out to be even worse. The Fed has made it clear that it will tighten monetary policy in 2022, which is very bad for stock indices. Thus, despite Thursday's gains, the US stock market is still in a correction.

For example, Mike Wilson, one of Morgan Stanley's chief strategists, said that winter had arrived for the stock market. He believes that tighter monetary policy will continue to put pressure on stocks of various companies, except maybe those that will show the recovery associated with the retreat of the next wave of the pandemic. At the same time, another major bank, Goldman Sachs, said it saw no signs of a bubble in the stock market. The bank's view is that the situation now is nothing like the dotcom bubble burst in 2000. Goldman Sachs' Sharmin Mossavar-Rahmani believes the worst thing an investor can do is sell stocks in a downturn. However, if no one ever sold stocks, there would be no recessions. And if no one ever sold stocks on recessions, there would be no collapses and corrections. Sharmin Mossavar-Rahmani believes corporate earnings are very strong right now, but most investors surveyed are in a depressed state. It should also be noted that Jeremy Grantham had previously warned that a collapse in the US stock market had already begun and that the Fed would not be able to save a 50% drop in the stock market. Thus, US corporations are in serious trouble. Although there is some hope for a positive scenario. This is because the Fed has not yet started to raise rates and has not started to withdraw excess liquidity from the economy. If the money supply starts to shrink because of the sell-off of corporate and mortgage bonds from the Fed balance sheet, that would be a bad sign because the opposite of the processes that have driven the US stock market higher in the last two years would be triggered. On the other hand, indices and equities are already falling while the Fed has not yet raised rates and continues to stimulate the economy with the QE programme! So, we believe that risky assets will correct this year. There might even be a collapse in the markets.

Analyst InstaForex
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