US futures are in green and stocks are looking to open higher on Tuesday. On Friday, the US market witnessed a big sell-off after Fed Chairman Jerome Powell sent a clear message that the economy will continue to suffer on account of rate hikes but such pain has to come at the cost of taming inflation. US stocks closed lower on Monday also but today it seems the two-days sell-off gets a pause. FTSE 100 and DAX and all of the European markets were also trading higher during the day.
Dow 30, S&P 500 and Nasdaq 100 were all up by 0.41%, 0.47% and 63% on Tuesday.
Stock prices seem to be increasing as market sentiment improved after a sell-off prompted by the Federal Reserve’s announcement of a prolonged period of tight monetary policy to combat inflation.
But, the macroeconomic risks still exist and the markets may have to take them into account sooner or later. The latest setback for investors in a difficult year for investors is Powell’s pushback against market expectations for a turn to interest-rate decreases next year. This week, the Fed plans to accelerate the reduction of its almost $9 trillion balance sheet. Other risks range from China’s economic slowdown to an energy crisis that threatens to tip Europe into recession with winter approaching.
Bonds are headed for their first bear market in a generation, punishing investors who were wrong to believe that central banks would abandon their aggressive interest rate increases.
After another round of selling following the Federal Reserve’s Jackson Hole symposium, the Bloomberg Global Aggregate Index, which measures total returns from investment-grade treasury and corporate bonds, is just one percentage point away from declining 20% from its peak.
All eyes will be on the August CPI numbers even though the inflation numbers are expected to be around the 8% mark. Any drastic fall could surprise the markets on the upside and reverse the trend in a quick time. The risks, anyhow, exist and may not be wiped out in a few weeks’ time.