For the US stock market, the US GDP report was of great importance yesterday, and not the ECB meeting. Thus, all investors closely followed this report, and after it was published, new purchases on the stock market began. Recall that GDP in the third quarter decreased in its growth rate to 2.0% q/q. Of course, this is not the final value, since this indicator comes out in three estimates once a month. Thus, the next two assessments can already show a more positive picture. Nevertheless, after the second quarter with an increase of 6.7%, this value looks very weak. However, investors rushed to buy stocks included in the S&P 500, Dow Jones, and NASDAQ indices again. However, if you delve into reflections, it becomes clear that it is quite natural.
To fully understand what happened, it is necessary to recall what statements Jerome Powell and other Fed members have made recently. All of them, in one way or another, tried to convey to the market that there are no threats to the American economy at this time. There are only risks of a slowdown due to disruptions in supply chains, rising energy prices, and the fact that supply outstrips demand. However, hardly anyone could have predicted such a drop in GDP. And now what will happen in the fourth quarter? And the most important question is: what will the Fed do when the last two reports on NonFarm Payrolls failed, as did the last report on GDP? From our point of view, the probability of a reduction in the economic stimulus program in November has now significantly decreased. It is logical to assume that if the economy is growing at a slower pace, and Nonfarm is shrinking, then the economic recovery should be more actively stimulated, and not vice versa. A separate issue is the topic of inflation. Recently, both Jerome Powell and Janet Yellen have openly stated that inflation will remain high for a longer period than previously expected. It will begin to shrink no earlier than next year. The Fed will have to somehow influence the consumer price index. However, so far, it has done nothing in this direction. And now the question is: will the Fed go to curtail QE to reduce inflation if economic growth in the States is falling and the labor market is recovering slowly? It is this dilemma that the members of the Fed board will need to solve on November 2-3. And, from our point of view, it may well be decided to postpone the curtailment of QE to December or later. And for the stock market, all of the above news are positive factors. Since the Fed does not change the volume of QE, money continues to flow into the American economy and be redirected to the stock and cryptocurrency markets, which are growing.
