Stock market to collapse on Wednesday?


Monday became a fruitful day for the US stock market as the S&P 500, the Dow Jones, and the NASDAQ continued to extend gains. The main US stock indices reach a new all-time high almost every day. However, the situation may drastically change already tomorrow. All in all, monetary policy tightening is surely a bullish factor for the US dollar and a bearish factor for the stock indices. In other words, policy tightening and interest rate hikes will be beneficial for the greenback. Indeed, it is too early to talk about interest rate hikes. At the same time, QE tapering might start already in November. If not, the dollar will go down as markets will be disenchanted with the Federal Reserve's ability to make important and responsible decisions. By the way, there is such a likelihood if the decision is postponed to December. Judging by macroeconomic data, the American economy again needs stimulus. US GDP fell to 2.0% on quarter and Nonfarm Payrolls had been stable for 2 consecutive months. Meanwhile, inflation keeps accelerating. Generally speaking, if the US regulator announces it starts QE tapering tomorrow, it will be an entirely inflation-based decision. If it had not been for inflation, then the central bank would hardly have made such a decision.

At the same time, there is one unobvious scenario where the Fed announces a reduction in asset purchases and the dollar shows no growth. For example, the greenback has been rising against the euro for quite a while. Therefore, it can be assumed that QE tapering has already been priced in the pair's current rate. As for the pound sterling, it is a completely opposite situation, the currency has recently been strengthening against the dollar. In other words, the pound is likely to plunge in the first place. Speaking of stock indices, if the Fed announces tapering, they are likely to fall in the short term. However, it will unlikely lead to a prolonged correction or a downward trend. The fact is that the Fed will definitely continue to pump cash into the American economy in the first six months of next year. Thus, both the cryptocurrency market and the stock market will also feel the influx of new investments, which will allow them to grow. In this light, the US stock indices are not expected to seriously change. At the same time, it will be more interesting to see how the greenback behaves. On Friday, data on US Nonfarm Payrolls for October will be released. The results could have a significant impact on the dollar rate, as well as investors' sentiment.

The material has been provided by InstaForex Company -

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