US stocks under pressure after better than expected US data

08.07.2019 15:33|Daniel Kostecki

We live in very interesting times, to which we had to get used to 10 years ago, that is from the end of the financial crisis, which began in the United States. Since that time nothing is the same in the markets.

The above-average operations of the US Federal Reserve, the use of non-standard monetary policy tools, the purchase of assets and the cut of interest rates also caused the market and investors to get used to saving the economy with cheap money. This was also a key factor in the behavior of stock exchange indices in the United States, where after the crisis the longest ever boom appeared. At that time, the S&P 500 index increased by over 350 percent.

What's more, it was also said that the FED is becoming a hostage of markets. This was confirmed by the return in the central bank's attitude to interest rate hikes at the end of 2018. The strong and rapid decline in stock prices was also expected to affect the dovish statements of the FED president and move away from tightening monetary policy. The trade war with China and fears of a global economic downturn and an increase in the likelihood of a recession in the US have caused the market to even estimate the chances of interest rate cuts by 50 basis points, which could help the US stock indices reach new historical highs.

On Friday, after the better than expected report from the US labor market, the market reduced the odds of such a deep cut in interest rates. This, in consequence, could increase the supply on the stock market. In short, the worse the economy is, the higher the odds of loosening monetary policy and cheap money, which in turn, contrary to logic, may translate into an increase in share prices and vice versa. It seems that this is how the times have changed since the financial crisis, and investors have become addicted to cheaper cash and this may not change quickly.

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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