The key indices of the US stock market – Dow Jones, NASDAQ, and S&P 500 – ended Friday with fairly strong growth. All three indexes have grown, but even taking into account this strengthening, the overall picture of the situation in the US stock market does not change. If you look closely at the daily charts, it becomes clear that we are dealing with almost a classic downward trend. The indices give out quite strong downward impulses, after which it is corrected within a week or two or three. Such a correction could have started a week ago. Therefore, we would not open champagne now and read that the fall of the US stock market is complete. Recall two important points. First, even if the fundamental background is very bad, this does not mean that the instrument will fall constantly and recoilless. The second is that the Fed has just started tightening monetary policy, and the QT program will only work from July 1. Thus, all the most serious tightening is still ahead. Therefore, at this time, we are not seeing a change of mood from "bearish" to "bullish", but just a banal pullback. Meanwhile, in America, everyone is preparing for a recession.
Jerome Powell, during his speeches in the US Congress, admitted that the American economy would face a recession. Recall that we have repeatedly talked about this, so Jerome clearly "did not open America" with his statement. First, the US economy has recovered very quickly and strongly thanks to low rates and the QE program. Naturally, after a period of strong artificial growth, a period of slowdown will follow. Second, monetary policy is tightening, the economy is cooling, so a recession is quite a logical development. Third, there is nothing wrong with a recession. At this time, the economy is normalizing, so it is important to achieve a result in which the economy will grow at rates of 2.5-3%. Even El Salvador's economy will grow at a zero rate and huge cash injections from the Central Bank. "Market" growth is required, not artificial. Therefore, from our point of view, there will be a slowdown in the economy, but everything will depend on how long it will take for inflation to return to 2%. With all due respect to the Fed, it can be said to have missed the time when rates needed to start raising. Therefore, even with rates above 3% (which we do not see yet), it may take quite a lot of time to reduce inflation to the target level. But the longer rates remain above the neutral level, the more the US economy will slow down. Inflation, we recall, is influenced not only by the actions of the central bank. If, for example, energy prices continue to rise in the medium term, then whatever the Fed does, it will not achieve its goal quickly, easily, and as painlessly as possible.
