The key indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - resumed their decline. They have closed the last three days in the red. However, even their last fall cannot yet be called a "strong correction". It seems that the markets are clinging to every straw with the last of their strength. After all, it is no secret that this year will be a "year of tightening" for monetary policy not only of the Fed but also of many other central banks of the world. Accordingly, both the stock market and the cryptocurrency market will be at risk. The cryptocurrency market has been experiencing obvious relief in the last few days and is even showing good growth. Thus, we do not agree with the opinion that the stock and cryptocurrency segments are now strongly correlated with each other and the cryptocurrency almost pulls the stock market down. Rather, on the contrary. There is practically no correlation, and the fact that at the beginning of the year both markets tended to fall is explained by the fact that both markets are risky.
And when the central bank is going to raise the rate, refuse to stimulate and unload its balance sheet, this, of course, will negatively affect the demand for stocks and other risky assets, like bitcoin. Thus, we consider the latest round of growth of the DOW Jones, NASDAQ, and S&P 500 indices as a correction against a more global correction. It just doesn't make sense to buy stocks for the future now. Most experts are confident that if the US stock market does not collapse in 2022, it will be seriously adjusted. At this time, by and large, it does not even have sufficient grounds for this yet. After all, the Fed has not raised the rate yet, and the QE program is still in effect. However, already in March, the Federal Reserve may announced a complete rejection of QE and raise the rate by 0.25-0.50%. From our point of view, we should expect a new fall in the stock market and a lot of stocks.
The next blow may be dealt in June-July when the Fed is going to start selling treasury and mortgage bonds, which have accumulated on its balance sheet for $ 9 trillion. This "unloading" will mean that the Fed will withdraw excess money from the economy. Consequently, the reverse process of stimulation through QE will be launched. And if so, then the effect should be the opposite for the markets. If the dollar was actively falling and hardly adjusted when the Fed poured hundreds of billions of dollars into the economy, now it should grow more confidently, and the stock market will lose additional cash flows at the expense of the Fed. Moreover, the cash flow will decrease, which cannot but affect the value of stocks and indices.
