Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The vast majority of retail client accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

The vast majority of retail client accounts lose money when trading CFDs.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
ATFX
ATFX-search-icon
Client Portal
Start trading
rch

US Stocks Face Significant Downside Risk

The initial value of the US Markit composite PMI in August has been released, and the announced value is 45, which is lower than the previous value of 47.7. In addition, the initial values of the manufacturing and service industry PMIs were lower than expected, and the service industry PMI has fallen to 44.1 from the previous value of 47.3. As a result, the markets are worried that the US economy will slow down after the latest data is released.

Previously, the S&P 500 index had risen 17% since mid-June, driven by improved earnings performance by most companies during the second quarter earnings season. However, the US stock market has reversed course in recent days. The trend has shifted into a downturn due to the market's interest rate hike expectations and economic concerns. At present, US stocks are in a crucial position of directional adjustment. It is expected that downside risks will continue to emerge in the future while the upside momentum is limited.sp500 chart-1

Firstly, although the US inflation data in July fell from 9.1% in June, it was still higher than 8.5%. Many US Federal Reserve officials have hinted that they will continue to raise interest rates sharply to lower inflation, which was also reflected in the July Fed monetary policy meeting minutes. However, investors and analysts are divided on whether the Fed will raise interest rates by 50 or 75 basis points. It is worth noting that the hawkish voices have increased recently, which has put downward pressure on US stocks since the financing costs for enterprises will likely continue to rise, which could drag down growth while boosting the dollar index.

Last week, investors were mainly waiting for Fed Chairman Jerome Powell's speech at the Jackson Hole central bank's annual meeting on August 26. The outside world was paying particular attention to his views on the outlook of future US monetary policy, hoping to find clues as to whether the Fed will raise interest rates in September. Attitude guidance: if the Fed maintains the current tightening policy, the next trend in US stocks may be more negative; otherwise, US stocks could rally on a dovish Fed.

On the other hand, the US economic data is not satisfactory. Recent PMI data shows that business activities are not performing well. Both the manufacturing and service industries continue to shrink. As inflation in the export market severely restricts demand, the number of new US export orders in August fell significantly. The sharp drop further exacerbated domestic concerns about a recession and may affect the Fed's upcoming decision on whether to raise interest rates. Affected by significant interest rate hikes, US new home sales fell 12.6% month-on-month in July, much more than the expected 2.5% decline, and sales volume has shrunk to the lowest level in six years.

The economic downturn has had a significant impact on the performance of the US stock market. On the evening of August 25, Beijing time, the revised value of the annualised quarterly rate of real GDP in the second quarter of the United States will be announced. The estimated value is -0.8%, and the previous value is -0.9%. If it is harmful for two consecutive quarters, it may intensify the market's forecast of a downturn in the US economy, which will be a negative factor for US stocks this week. In addition, July's annual rate of the core PCE price index in the United States will be released this Friday. The market is concerned about whether the data will decline. If the PCE is lower than expected, it will likely increase the market’s dovish view.

It can be seen that the current downward pressure on US stocks is intensifying. Hawkish interest rate hike forecasts, sluggish economic data, or inflation data that is likely to rise further may all exert pressure on the future direction of US stocks. However, as the fate of the September rate hike is not yet clear, vital information on fundamentals will continue to dominate the short-term stock market direction.

Last Updated: 26/08/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

Recent news

Recent news
Gold Heading for $2,000 as War Theme Escalates

Gold prices were $20 lower on Thursday after the more substantial GDP number from the US. ...

Recent news
GBPUSD Could Be Ready for a Meaningful Pullback

GBPUSD will move with the US PCE pricing data release as analysts continue to price the in...

Recent news
EURUSD Trading Levels Ahead of US GDP Growth Release

EURUSD will be in focus as the US economy gets to see another GDP growth release on Thursd...

Recent news
Oil Price Still Trying to Find a Price Low

The oil price is still trying to find a price low near the $80 level this week.  Oil has c...

Recent news
Potential Canadian Dollar Rebound As EURCAD Faces IFO Index

EURCAD to face a release of data on Wednesday and could define whether the Canadian dollar...