| John Mayer, Chief Investment Officer at Global X |
At the center of Wall Street trading week will be a meeting of the Federal Reserve, at the end of which the bank may announce an increase in the rate of reduction in light of high inflation. On the other hand, the encouraging data on the dangerousness of the Omicron strain and the upcoming holidays in the US may lead to an end-of-year rally.
Trading in the stock markets in recent times is characterized by high volatility. In our view, this is due to two main factors: the uncertainty surrounding the risks and consequences of variant Omicron, and secondly, the changes of the Federal Reserve. At this point, the danger and contagion level of variant Omicron has not yet been definitively clarified, and markets fear a re-emergence of morbidity that will lead to restrictions on the economy and possibly even closures, as already imposed in some European countries. Such a development could further burden the supply chain and hurt economic growth, as well as fuel inflation.
However, it must be said that for the time being the data show that the omicron is indeed more contagious but less deadly. Policymakers are currently taking a cautious approach and most countries are imposing flight restrictions, but we hope that as the data verifies the fact that the Omicron is no more dangerous than the Delta, the skies will reopen and the restrictions will be lifted.
This cloud has dragged down the leading indices in recent weeks. There is also concern in the market that, as recently reflected in the United States, it will lead to a tightening of the Federal Reserve’s monetary policy, accelerating the rate of quantitative easing and normalization. Given the fact that the Consumption Expenditure Index (PCE) is at a high level of 2.3%, it seems that the Fed will have to act soon if it wants to moderate inflation.
Therefore, the eyes will be on the Federal Reserve’s monthly policy meeting this week. For now, the Fed has announced a $ 15 billion-a-month asset purchase reduction. However, in light of the consumer price index, which indicated annual inflation of 6.8%, the bank may have no choice but to announce an increase in the rate of contraction this week.
The markets may be able to draw encouragement from the upcoming holidays. Historically, in most cases the end of the year is characterized by a positive sentiment in the capital markets, or what has been dubbed the “Christmas rally”. Although there are also years when the year ends with a more jarring chord. During this period, trading volumes decrease significantly, since quite a few market players advance their vacation and downshift. Low trading volumes carry a risk of sharp market movements.
The author is a senior investment manager at the GlobalX mutual fund company. The above should not be construed as investment advice, recommendation or opinion regarding any financial products.