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24.01.202207:11 Forex Analysis & Reviews: Situation in US stock market may exacerbate due to Fed's upcoming meeting this week

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Exchange Rates 24.01.2022 analysis

The US stock market was bearish last Friday. The NASDAQ lost 287 points, the S&P 500 tumbled by 63 points, and the Dow Jones plummeted by 329 points. The plunge came due to the hawkish stance adopted by the US Federal Reserve this year. No wonder, the US stock market started to react to policy tightening. At the same time, the regulator has not finished the winddown of asset purchases yet. It just reduced the QE program by $45 billion a month. This means that the US central bank will continue to pump up cash into the American economy. For that reason, market participants showed no reaction to the Federal Reserve's actions. At the same time, they have already acknowledged the fact that this is going to be a tough year for the economy. That is why stock indices have been bearish since the beginning of the new year. Moreover, a prolonged correction could emerge.

The first 2022 policy meeting of the Federal Reserve is likely to become the crucial event of the month. Market participants are sure that the regulator will cut the QE program by another $30 billion and abandon it entirely in March. This factor could be enough to push stock indices further down. Notably, a plunge could be similar to January's. Above all else, the central bank is likely to raise interest rates as early as March. Nevertheless, the adage "Buy the rumor, sell the fact" is now working. All we can do is suggest a possible fall in the US stock market this year. Speaking of the Fed's policy meeting. The market will focus not only on the rate decision but also on Chair Powell's comments. Today, only several investors doubt that there are going to be at least 3-4 rate hikes. At the same time, Mr. Powell has just hinted at the first rate hike but has never spoken about it openly. In fact, unlike his colleagues, he takes up a rather cautious stance every time he speaks. So, Powell's hawkish comments could trigger a sell-off in the stock market. Likewise, Bitcoin and other cryptocurrencies have recently been bearish. Indeed, risk assets are at the highest risk when it comes to policy tightening. For that reason, cryptos are falling in January.

Eseguito da Paolo Greco
Esperto analista di InstaForex
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