This week, all the world markets’ attention will be turned to one of the most important events – President Joe Biden’s inauguration, which will occur on January 20.
This event is significant as it affects political life inside and outside the United States and financial markets. Last week’s announced measures to help the American people and stimulate the national economy have had the opposite effect.
Why did it happen?
I believe that this financial market reaction was associated with two natural reasons. The first is, well, a very significant promised amount of aid in the region of $ 2 trillion. Many investors doubt that this desire of the new Presidential Administration and personally of Jое Biden will be approved by Congress, which has a significant number of opponents of such a volume of aid and an enormous burden on its budget, which is already in an unprecedented deficit. Congress may simply not approve of this initiative. It will be a severe blow to the US stock market, which, using the rule of “buy on rumors and sell the news,” has once again rewritten historical highs. Any discussion on this topic in Congress will lead to a renewed fall in demand for risky assets (company shares) and a resumption of the growth of the dollar.
At the beginning of the new year, American stock indices’ correction after a prolonged consolidation period is already happening. It was caused, on the one hand, by profit-taking after a noticeably strong rally at the end of last year, an indistinct picture around the previously promised support measures, and on the other hand, on the wave of a technical factor. As I mentioned above, stock indices rose strongly, marking new historical highs, after which a correction usually occurs. And now investors are faced with a dilemma, whether it will be short and not deep, or, on the contrary, will drag on and turn out to be noticeably strong.
What to expect soon:
Assessing the market situation, I believe that the correction may continue. Today is a bank holiday in the USA due to the Martin Luther King Jr. Day and activity on the markets will be lower than usual. I believe that this week there may be two scenarios. The first is the continuation of the corrective decline in stock indices with a simultaneous rise in the dollar exchange rate. The second is the start of the consolidation process in anticipation of Congress’s decision on support measures.