Market indices closed their session lows on Tuesday, but also couldn’t support the afternoon’s climb to the green, and slipped – much like we saw during Monday’s session – during the last half hour of trading. The Dow ended at -0.30%, -105 points, the S&P 500 at -0.74% and the Nasdaq raised the van, -1.14%, or -175.64 points. Small cap Russell 2000 was down nearly a percentage point on the day, -0.96%.
After peaks of almost 40 years at a time on the Consumer Price Index (CPI) and Producer price index (PPI) in recent days, it is now a given on Wall Street that tomorrow’s Fed meeting will result in a lot of hawkish speeches about reducing asset purchases, on the way to an interest rate hike sooner rather than later. . It’s not that this is an irresponsible move: higher rates are needed to absorb inflation, which is now seen as the number one threat to the US economy in the near term.
Yet the flattening of purchases will mark the end of the cheap monetary environment the Fed put in place in February 2020, on the first lightning bolts of Covid-19 threatening to cause a global pandemic (and international economic shutdowns). Even when inflation metrics started to get hot, President Jay Powell led the Fed into inaction, saying supply constraints as the global market woke up from the pandemic together created “transient inflation” “. That word is now withdrawn from Powell’s current economics perspective, and tightening is expected to progress tomorrow.
That’s why market participants are taking the opportunity to register gains ahead of the Fed’s announcement on Wednesday. We are a long way from a bearish trading mode: while it is true that the Nasdaq is now at -6% of its all-time highs closing earlier in the year, it is still at + 20% since the start of the year. The Dow is still trading above its 50-day moving average, -3% from all-time highs, and the S&P 500 has made year-to-date gains squarely between + 28.9% of 2019 and the + 16.3% of 2020 So consider this recent period of massive sales as a reasonable positioning to return to the solid performance of the market once the dust settles.
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