Trending
Stocks
  • TSLA
    194.88 USD 0.08%
  • SP500
    4072.11 USD -0.12%
  • FB
    184.02 USD -6.43%
  • MSFT
    255.05 USD 0.13%
  • BRKA
    477450.74 USD 0.07%
  • T
    19.02 USD -0.89%
  • ADBE
    341.56 USD -0.75%
  • MMM
    127 USD 0.79%
  • AMZN
    94.14 USD -1.43%
  • AAPL
    147.82 USD -0.34%
  • NFLX
    320.44 USD 1.09%
  • NVDA
    168.78 USD -1.51%

Why are US indices dropping?

Indices have been dropping down for a few days now. And it does not look like they are about to stop. Why is this happening and what can we expect in the last month of this year?

What is causing the drop?

In my humble opinion, I believe that the current drop is caused by the chaos and uncertainty around the FED. We can see inflation rising almost anywhere in the world. FED is being bombarded by questions regarding the inflation almost every day. We have even mentioned this in previous articles in connection with different stimulus. Until now, they were as high 120 billion dollars a month. In November, FED decided to lower it by 15 billion dollars a month, to the current level of 105 billions. Yet, inflation is still rising not only in US, but also in Europe, which is a reason why Jerome Powell, Chairman of the FED, indicated that there might be more aggressive decisions announced in the near future from the FED.

Next meeting is planned on 15th of December, where the most expected topic will probably be decreasing the size of stimulus again, due to inflation fears. This might have caused the fear spreading around the markets, leading to the price drops.

With the current size of stimulus, it was expected that the whole “market support” might be ended around June or July next year. This can even be followed by increasing of the interest rates. However, if the size of stimulus would be decreased faster, the whole programme could end by the end of Q1 and the interest rate hikes could be expected during the summer. The upcoming meeting will thus be crucial for next few months.

Reaction from S&P 500

Looking at the markets, the fear is definitely present. Bonds are rising, gold is moving to the side and indices are falling. The uncertainty and uneasiness is definitely there. If we take a close look at S&P 500, we can see that this index is losing value. NASDAQ is in very similar situation.

As of now, it is crucial to be following the main supports and whether we see them broken or only tested. S&P 500 has been mostly reacting nicely to supports so far, but we would need to see some bullish upward movement or a break of a trendline or a new High to be sure.

S&P 500 dropping 1D chart of S&P 500

Conclusion

This month is going to be very important for the markets mostly due to the FED meeting. If FED chooses a more hawkish approach and the size of stimulus would decrease, markets can react badly. Good news is that FED has announced this in advance, which means that the shock to the markets will not be so big and traders and investors can prepare accordingly.

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...

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