The US stock market includes interest rate hike scenario in pricing

On Thursday, US stock indices fell sharply by the end of the day due to the drop in consumer stocks and new weakness in the technology sector. Energy stocks were also pressured by the decline in oil prices on the back of an unexpected increase in weekly US crude oil reserves. The S&P 500 Index (US500) decreased by 1.1%, the Dow Jones Industrial Average (US30) fell by 0.9%, and the Nasdaq Technology Index (US100) lost 1.3%. The market is now pricing in a scenario with the US Federal Reserve raising interest rates, so the US stock market is slowly entering a full correction wave.

US initial jobless claims increased by 55,000 to 286,000 for the week, a three-month high. Analysts had predicted a decline, so the data turned out worse than expected.

Rick Reeder of BlackRock said yesterday that US stocks could still rise 10% or more in 2022 as inflation declines and corporate earnings continue to rise. The head of bond investments at the $10 trillion asset manager said the strength of the US economy should help companies show strong financial results. Reeder said he expects GDP growth of around 7% and predicts earnings growth of about 12% to 15%.

Peloton Interactive (NASDAQ: PTON) plans to temporarily shut down the production of connected fitness products amid falling demand. The company's stock fell by 24% yesterday.

On Thursday, streaming service Netflix Inc (NASDAQ: NFLX) reported better-than-expected fourth-quarter earnings but gave a weak first-quarter subscriber growth outlook, sending shares down nearly 20% after market close.

Analysts began lowering their forecasts for FAANG companies. Considering that the market has recently been holding on to its highs due to the growth of FAANG companies, this situation may lead to a significant correction in the stock market.

The new draft of the US sanctions against Russia provides measures against Nord Stream 2, including organizations associated with it and their shareholders. US congressmen propose to impose sanctions against Russian businessmen: Abramovich, Usmanov, Deripaska, Sechin, Miller, Kostin, and Timchenko.

Unlike the US stock indices, major European indices were mainly rising yesterday. Germany's DAX (DE30) gained 0.7%, France's CAC 40 (FR40) added 0.3%, Spain's IBEX 35 (ES35) increased by 0.5%. The only exception was the British FTSE 100 (UK100), which lost 0.06%. The ECB minutes showed that the European Central Bank officials agreed that the recent and near-term forecasted increase in inflation was mainly due to temporary causes that are likely to reduce in 2022. ECB President Christine Lagarde said the European Central Bank has "good reason" not to respond as strongly as the Federal Reserve to rising consumer prices. "Under current conditions and inflation forecasts, interest rates are not expected to rise in 2022," said ECB Governing Council member Pablo Hernandez de Kos. Germany's producer price index increased by 24% from last December. The increase in the inflation rate has been observed for 12 months in a row.

On Friday, the Asia-Pacific stock indices are declining following the US stock indices. Hong Kong's Hang Seng decreased by 0.12%, Australia's ASX 200 (AU200) fell by 2.27%, Japan's Nikkei 225 Index (JP225) lost 0.9%. The Bank of Japan stressed that it is in no hurry to abandon its ultra-soft monetary policy and called the recent inflation-induced rise in prices temporary. Japan's core consumer prices rose 0.5% in December compared to last year. Japan's nationwide core consumer price index, excluding food prices, showed growth for the fourth month in a row.

Main market quotes:

S&P 500 (F) (US500) 4,482.73 −50.03 (−1.10%)

Dow Jones (US30) 34,715.39 −313.26 (−0.89%)

DAX (DE40) 15,912.33 +102.61 (+0.65%)

FTSE 100 (UK100) 7,585.01 −4.65 (−0.061%)

USD Index 95.80 +0.29 (+0.31%)

• - Japan National Core Consumer Price Index at 01:30 (GMT+2);
• - Japan Monetary Policy Meeting Minutes at 01:50 (GMT+2);
• - UK Retail Sales (m/m) at 09:00 (GMT+2);
• - Eurozone ECB President Lagarde Speaks at 14:30 (GMT+2);
• - Canada Retail Sales (m/m) at 15:30 (GMT+2).

by JustMarkets, 2022.01.21

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.