Everyone who watched the market over the past 2 months knows that common sense and logic in the markets no longer work. Against the background of bad news, the stock market can both grow and fall.

Today we will analyze all the reasons why the stock market should continue to fall, and then consider counterarguments that show why the stock market should continue to grow.

The last few months have been extremely troubled. In March 2022, the Fed back to a quantitative softening policy to combat record high inflation.

The Fed raised interest rates, reduced the amount of money in the economy and collapsed the stock market. The NASDAQ index collapsed by more than 24%, and the S&P 500 and Dow Jones lost more than 10% of the peak values.

For reference: the last 13 cycles of raising bets, 10 of them were preceded by recessions.

Factors that will continue to push the stock market down

💥FRS began to reduce its balance. The fact is that over the past 2 years, the Fed has supported the economy by buying corporate debts, mortgage securities and guaranteed to provide loans at favorable rates to everyone who needed them.

As a result, about 80% of all dollar appeals have been printed over the past 22 months. Uncontrolled inflation was a side effect - this led to a reduction in assets on the balance sheet.

The Fed began to sell her own portfolio in the open market and destroy the money that she poured into the economy with the help of issued loans.

In a normal situation, the Fed issues loans and receives them back with interest, and then again gives the same money in the form of a new loan - this is how a constant flow of money is ensured in the economy.

However, in the modern realities, the Fed receives money back, and then simply “burns” them so that they no longer fall into circulation - this causes serious concerns about the possibility of the stock market to maintain steady growth without constant intervention of the Fed.

During the period of tightening the Fed’s policy, the stock market usually stagnates or simply falls.

💥 Percentage in the percentage rates and slowdown. In response to an increase in inflation, the Fed, in the short term, seeks to establish a “neutral interest rate”, which does not stimulate and does not prevent economic growth.

And, in fact, no one knows exactly what this neutral indicator is equal to. It is approximately calculated on the basis of various tests and observations.

In the current situation, it was suggested that it is about 2.5%. Some believe that such a rate involves a decrease in inflation. And, if this does not happen, then you will have to continue to increase the rate.

As a result, the profitability of S&P 500 fell 3 times. Some data indicate that we are on the verge of decades of low profitability, because we have already experienced a period of strong growth.

💥 The 2020 in the United States has the greatest reduction in jobs in the technological sector. For example, Tesla reduces 10% personnel, PayPal announces upcoming abbreviations, Robinhood fired 9% of employees, Netflix dismisses 150 employees.

But the fact is that this is only the tip of the iceberg. It is expected that the situation will only worsen further.

💥 Stagflation. This would be the worst script not only for the stock market, but also for the economy.

Stagflation is a period when economic growth slows down against the background of growing unemployment and high inflation. In such a situation, an attempt to solve one problem exacerbates another.

💥 We have no idea about pricing. The stock market is indifferent to what is happening right now, it is only interesting to it.

All we need to do is take existing factors that affect the price and try to predict what will happen over the next few weeks.

Factors that will push the stock market up

💥S & P 500 actually reached its fair price.

💥 Clean inflation has already begun to decline. According to the new report, the monthly basic inflation rate amounted to about 4% in annual calculus (3 months ago inflation was 6%).

Of course, it’s too early to say whether this level of inflation will become a new norm (especially, given the latest news about the new record level of inflation in the United States).

💥 Pose 2 months quarantine, China canceled a number of restrictions. In general, this is an unfavorable situation, however, it is expected that in the end the situation is somewhat normalized.

Of course, this does not mean that now everything has already worked out, but this is a step in the right direction.

💥 Reserves can lead to a decrease in prices and even to a decrease in inflation. It is known that the high level of stocks is due to the fact that the companies purchased as many goods as possible to maintain demand, but now the demand has fallen.

In theory, this should slightly reduce inflation, which in turn will allow the Fed to reduce interest rates, and this will lead to growth of the stock market.

💥Maximal decline in many market segments (90% compared to peak indicators).

Of course, this does not mean that the market has nowhere else to fall, but this can be a sign of approaching assessments to the real level that can support the market.

💥 Separate marketers are extremely pessimistic about its prospects. And statistics show that what everyone believes does not happen to.

Since, when everyone believes in certain market forecasts, they take precautions in advance, which help to prevent the proposed outcome.

And, if everyone is waiting for a quick collapse of the market, they will not sell anything (of course, from what they have not sold), and this will lead to an increase in market prices, especially taking into account the fact that most private investors have already sold all the shares that are already sold that They bought over the past 2 years.

Results

In general, forecasting the situation in the short term is not much different from fortune -telling on coffee grounds. No one knows what will actually happen.

But this does not mean that we do not need to study economic data, analyze it and draw logical conclusions.

Of course, in the end, we will not get an accurate idea of ​​how the markets will react, and when we reach the bottom.

Therefore, now the best strategy is to buy interesting promotions at an attractive price and keep them for long-term (5-10 years).

For today, thanks for your attention!

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