Why did the rally in stock markets stop?


Previously, the main factor supporting demand for company shares was the expectation of new large-scale stimulus measures in the United States. But after it became clear that none of the opposing sides participating in the presidential election was going to give in to their opponent in terms of new measures to support American citizens and the country’s economy, stock prices began to decline on the wave of profit-taking.

Investors are still confident that regardless of who wins the presidential race, Donald Trump or Joe Biden, incentives will be adopted. But we still have almost a month before the election on November 3 happens. For now, against the background of high volatility, we should expect general lateral dynamics in stock indices, not only in the US but also in Europe and Asia.

Another important reason for the south reversal on markets was the second wave of coronavirus infection in Europe. Many European countries, for example, the UK, are trying to find a way to maintain acceptable economic activity in the country and somehow protect themselves from the impact of COVID-19. Meanwhile, in the United States, COVID-19 has never actually reduced its activity, and the country is facing new records of the recent infection cases.

These two main reasons entirely influence the overall situation in the markets. Until the end of this month, investors will pay attention to these factors instead of economic statistics that indicate promising low inflation in Europe, America, and Asia, and China in particular. Thi is an apparent characteristic of the weakness of demand for the goods. Under these conditions, demand for company shares will also remain weak. Only a new injection of stimulus measures in the post-election period can briefly revive the financial markets with increased demand for shares.

What to expect soon

I believe that financial markets on the eve of the election in America will continue to consolidate due to high volatility.

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By Maksim FXbro