In the last few days, key US stock indices have been declining. So far, this decline is still too weak to be interpreted as a correction. Nevertheless, there is a decline. However, do not rush to conclusions. As we have already said, all US stock indices can continue to grow quietly for one simple reason: the Fed continues to pour $ 120 billion into the US economy every month. And even if this amount decreases in the near future, we are still talking about huge sums that come to the economy from nowhere. However, in recent weeks, the mood of investors may have slightly worsened, as many of them expect the continued growth of shares of American companies. And if the "bubble" that has inflated on the stock market over the past year and a half bursts, it can hurt many. It turns out that the key question for the US stock market is when the "bubble" will burst? We believe that investors may start to discount some stocks if they feel that "the time is coming." The Fed may announce the beginning of the curtailment of the quantitative stimulus program as early as September. And this can be predicted based on three factors.
The first is inflation. As yesterday's report showed, inflation slowed by 0.1% in August. It cannot be said that it has seriously slowed down. And it is unlikely that it will slow down more strongly in September or October. Therefore, there is not much difference in whether to announce the curtailment of QE in September or November. The Fed does not expect that inflation will continue to grow. Thus, the current values compensate for last year, when inflation was almost zero, and are also a consequence of temporary factors such as rising energy prices and the implementation of deferred demand.
The second is the state of the US labor market. The latest report was weak, but hardly anyone thought that the American economy would create 1 million jobs every month. On average, 500 thousand are created every month, and this is quite enough to talk about maintaining the recovery process to pre-pandemic levels. FOMC member James Bullard openly stated it. Thus, one bad report is unlikely to change the Fed's plans dramatically.
The third is the attitude of the members of the Fed's monetary committee. And here, everything is most obvious. People will make the appropriate decision on QE. And if these people are already set up to complete the incentives, as they openly say, then the probability of making this decision is high. The only one who has not yet talked about folding is Jerome Powell. However, it can be assumed that he remains silent without provoking serious fluctuations in the markets.
