As we have already said in previous articles, despite the decline in the consumer price index in July, this change will not fundamentally affect the Fed's monetary approach. Yes, now we will be talking about an increase of 0.5% and not by 0.75% or 1.00%, but does this somehow change the vector of the Fed's movement? After all, monetary policy will still be tightened, and money from the American economy will be withdrawn under the quantitative tightening program, which will grow to $100 billion per month from September. It turns out that the stock market grew at ultra-low rates, and, with a colossal QE program in 2020 and 2021, it will grow at high rates and with a colossal QT program. Of course, we assume that foreign investors could rush into the US stock market because of the difficult geopolitical situation in Europe. Indeed, if we choose between European and American markets and are guided by the principles of security and stability, then we would choose the latter. But this is just a hypothesis.
At the same time, one of the largest American banks, Bank of America, or its strategists, reported that the stock market might fall again despite strong growth in recent weeks. One of the bank's strategists, Jared Woodard, said that "the bottom of the market has not yet been reached," and the S&P 500 index, which has grown by about 13% in recent weeks, may complete its downward rally near the levels of 3500–3600. Interestingly, BofA believes that only 20–30% of market indicators have worked, indicating that the stock market has reached the "bottom." According to experts, the unemployment rate should start to rise, the Fed should start to lower the rate, and the yield of 2-year treasuries should decline. About 80% of market signals are triggered before the end of a downtrend. Now there are practically no signs that the "bearish" trend is over, which means a new collapse is possible.
Thus, we believe a "buyer's trap" may be forming in the US stock market. The price is rising, which forces an increasing number of investors to join this movement. But what if this is an attempt by larger players to pull prices to higher levels to arrange large-scale sales higher? We agree with the BofA experts' opinion and believe there will be at least one more market drop. By the way, the probability of a 0.5% rate increase in September-2022 has increased to 60% after yesterday. This means that the other three options gain only a 40% probability. At the same time, tightening by 0.5% is also strong. For example, the Bank of England decided to raise its rate by this value for only the sixth time.