World markets are ending November with strong growth in the wake of two significant events – creating effective vaccines in the West and the clarity of who will be the US President after the election.
The stock indices made such a leap up at the beginning of the month. Thanks to the news, the vaccine jointly produced by Pfizer and BioNTech is more than 90% effective, which turned investor sentiment by 180 degrees and led to the most substantial rally in many decades. The certainty of who will become the 46th President of the United States also had a positive effect on the market. Despite Donald Trump’s struggle, it seems that Joe Biden managed to become the winner in a tough and, as political analysts say, “dirty” battle. For investors, certainty is essential, and it has a beneficial effect on overall market sentiment.
Of course, positive is good, but it should be considered that markets cannot grow indefinitely. Technical factors also play a role here. There is an apparent inability to continue the steady growth of stock indices on the market. They hit the previously reached local maximums. Positive topics of vaccines and election results in the United States cannot forever keep the mood to buy shares in companies. This is why I expect a correction in the markets. It’s difficult to say how deep it will be, but it is necessary to be visible to the naked eye. It may begin today and last for several days.
Another critical point to consider is the end of the 3rd quarter, when large funds, including pension funds, begin to revise their portfolios, which may trigger a correction. Also, the markets will now closely follow the corporate reporting season for the third quarter. If it does not disappoint in general, then I expect a renewed growth in demand for company shares, but again, this process is likely to begin after a corrective decline.
If a correction begins in the stock markets, the US dollar will definitely receive support, mostly since the topic of anti-coronavirus measures in the US has faded, which previously put a lot of pressure on the dollar rate. On the other hand, it is heavily oversold versus major currencies, and the ICE dollar index approached the strong support level of 91.70 points. If it holds, then the dollar, supported by a likely correction in the markets, will receive noticeable local support and adjust to a basket of major currencies.
What to expect soon:
I believe that a correction in the stock markets with a simultaneous local growth in the dollar rate may begin with a high probability in the coming week.
There is a high likelihood of a correction in the stock markets with a simultaneous strengthening of the dollar.