The key indices of the US stock market – Dow Jones, NASDAQ, and S&P 500 – ended Friday with a new fall and are already coming close to their annual lows. As we have said in recent weeks, the decline in the US stock market was supposed to resume, since the global fundamental background has not changed recently. Thus, the last round of growth was just a technical correction or a trap for buyers who thought that the "bearish" trend had already been completed. From our point of view, the decline will continue at least until the end of 2022, because we are receiving more and more signals from the Fed about its readiness to raise the rate to more than 3.5%. Recall that this is the value of the rate at the beginning of the year that was considered the maximum. Now we are talking about 4.5%, and by 2023 it is unlikely that the rate will be lowered at least once.
Many large banks and analytical companies also predict a fall in the stock market. For example, Morgan Stanley bank experts believe that the market may collapse by another 25%. Wells Fargo believes that the drop will be another 9%. Analysts predict a recession for the American economy one by one, and if the US dollar practically does not react to these forecasts in any way, preferring to work out only the tightening of monetary policy, then the US stock market cannot ignore the recession since it means that the income and profit levels of issuing companies will decrease. Thus, indices and stocks have even more reasons to fall in 2022.
Of course, a lot will depend on the next inflation report, but the closer the date of its publication (September 14), the less likely it will affect the mood of the markets at all. The fact is that even if inflation falls again, this will not mean that the Fed will refuse to raise rates further. The regulator has already openly stated that the rate will continue to grow, except at a slightly slower pace than at the last two meetings. But even a 0.75% rate hike for the third time in a row in September remains highly likely. And such a monetary approach by the Fed practically guarantees the further growth of the dollar and the further fall of the stock market, which we observe. The next Fed meeting is scheduled for September 20–21. During these two weeks, there will be practically no comments from members of the monetary committee, as the "silence mode" begins. Friday's Nonfarm report did not add optimism to investors, as the issues of recession and further rate hikes are more important.
