The key indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - ended Friday with a new strong fall. Thus, at the moment, everything is going according to the plan that we have repeatedly announced in recent months. The US stock market continues to adjust and there are quite real and tangible reasons for this. Namely, the geopolitical conflict in Ukraine and the Fed's aggressive stance on monetary policy. We believe that the stock market may fall until the Fed stops raising the key rate. However, from July 1, it will also be necessary to take into account the QT program, according to which the monthly money supply in the United States will decrease by $ 95 billion. These two factors are the reverse of those that supported the stock and cryptocurrency markets during the two years of the pandemic. Then bitcoin and stocks were growing by leaps and bounds, now they will fall at the same pace. Thus, at this time, there is no reason to expect a new growth of indices or individual stocks. Some of them may show growth, but most will continue to fall.
This week, there will be a meeting of the Fed, the intrigue before which is completely absent. The probability of an increase in the key rate is 100%, with an increase of 0.5% at once. Thus, monetary policy will tighten, and the yield on bank deposits and treasury bonds will increase, but the demand for stocks and cryptocurrencies will decline again in the medium term. In principle, we don't even expect anything particularly interesting from the Fed meeting anymore. There will also be a speech by Jerome Powell, who will again talk about inflation and the need to stop its growth no matter what. However, now you won't surprise anyone with conversations. We all witnessed that the Fed raised the rate to 1%, but at the same time, inflation continued to grow and is growing. Experts believe that it is necessary to increase the rate to at least 3%. At the same time, it is not entirely clear whether such an increase is required to reduce inflation to the target 2%, or to simply stop the growth of the indicator? As we can see, the whole world is facing a new problem in 2022, which was very predictable, given the amount of money that central banks pumped into the economy. The question now is how to stop the growth of the consumer price index? If the Fed is at least mentally ready to raise to 3-3.5%, then the ECB is still hesitating and is not ready to raise rates more than twice this year. In general, the situation for stock markets is very difficult and we believe that the indices can adjust by a total of 30-40%, which is a lot.
