Indices and Stocks in the Red

Indices and Stocks in the Red

2022-11-22 • Updated

The stock market has reversed, and now it’s going lower and lower. What to expect? Let’s try to look through this situation for stocks and indices trading.

The current situation

Nasdaq (US100) and S&P 500 (US500), the major US stock indices, have lost roughly 12% to 25% this year. After two years of gains, it’s a painful drop. Now that the S&P 500 tested levels below 4050, the downside risk is 3800, or even 3600. A drop to 3800 would mean a loss of 21.18% since the beginning of the year.

US500Daily.png

The decline of the S&P 500 is mainly due to interest rates hikes. The rates are now at higher levels than the bank expected just a couple of months ago. Investors expect the Fed to raise the interest rate by another 100 basis points this summer.

Economic growth slowed, contracting 1.4% in the first quarter, and stocks have been hurt as tech and growth stocks continue to reprice in a new, more hawkish Fed policy.

The recession

According to a JPMorgan strategist, stock markets in the US and Europe estimate a 70% chance that the economy will slide into recession in the near future.

Recession warnings have sounded for months this year amid the war in Ukraine, coronavirus lockdowns in China, and a more hawkish Fed policy. Worries that policymakers' efforts to curb inflation will send the economy into recession have led investors to take nearly $10 trillion out of US stock markets this year.

While signs of a weakening economy are everywhere, it remains difficult to detect that a definite recession is approaching. Manufacturing and service activities haven’t reached their peak but are still expanding, consumers continue to spend, and employment and housing data are at the normal level.

If recession fears don’t materialize, restrained stock positioning and the reversal of the pessimistic sentiment will help the stock market recover.

What to expect?

According to analysts, similarly high chances of a recession have historically indicated further capital losses when a recession materializes. However, stocks tend to rise when the worst doesn't happen: the S&P 500 jumped 12% over the next 12 months. Analysts estimate that the market will be poised for an economic downturn and earnings recession if the S&P 500 falls below 3800.

Now analysts see valuations drop even further before the unpleasant decrease in the stock market ends, and earnings results will likely disappoint through 2022.

Similar

US100: Has the correction ended?
US100: Has the correction ended?

Bullish Scenario: Buys above 17910 with TP:18098.07, TP2:18277, and TP3: 18415 Bearish Scenario: Sells below 17850 with TP1:17730, TP2: 17700

Stocks To Watch For March
Stocks To Watch For March

During his program on CNBC on February 28, Jim Cramer expressed frustration with the impact of earnings reports on market behavior, noting how they often prompt rash decisions by average investors. He criticized the short-term focus and lack of attention to nuance in news coverage of earnings. Cramer cited examples of Home Depot and Lowe's, highlighting how investors reacted hastily to headline news without considering the broader context provided in earnings calls.

Latest news

AUD: Markets Prepare for RBA Rates Statement.
AUD: Markets Prepare for RBA Rates Statement.

The Reserve Bank of Australia (RBA) is widely anticipated to maintain its current interest rates at 4.35% following its two-day meeting concluding on Tuesday. Despite holding rates steady since December, the RBA has hinted at the possibility of further rate hikes due to persistently high inflation, which has exceeded its target range of 2% to 3%.

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera