S&P500: Bearish sentiments are strong in the market

February 18, 2016

US stock indices went up on Wednesday after the release of the minutes of the US Fed meeting in January, which was devoted to the US monetary policy. Dow Jones Industrial Average rose by 1.6%, Nasdaq Composite – by 2.2%. The indices of DJIA and S&P500 have been growing for the third consecutive session for the first time since the beginning of this year. Some shares of the banking sector have grown by more than 10% (shares of Deutsche Bank AG rose by 6.3% and shares of Credit Agricole SA have soared up by almost 14%). Due to the rise in oil prices caused by the outcome of the meeting of the largest oil producing countries in Doha and the minutes of the meeting of the US Fed, equities of the oil and gas sector have grown. 

The shares of Garmin Ltd. and Priceline Group Inc., which are incorporated into the index of the wide market S&P500, have increased by 17% and 11% respectively. The index S&P500 has increased by 1.7% yesterday. During yesterday’s trading session at NYMEX oil prices grew by 5.6% up to 30.66 USD per barrel. 

Spot-price of crude oil Brent reached the level of 34.90. The prices of the precious metals have increased after the release of the minutes of the meeting. The price of gold rose by 0.7% exceeding the level of 1200.00 USD per ounce. April futures for gold grew in price by 0.3%. 

It seems that market is regaining confidence that the US fed will not introduce monetary policy tightening in the near future. According to James Bullard, president of the Fed in St. Louis, (who is also a member of FOMC with the right of vote at the meetings devoted to the monetary policy), it would be unreasonable to increase rates when inflation expectations in the USA are decreasing and global financial markets are unstable. 

At the same time Mr. Bullard said that the US economy is on the right track, as labor market is stable. Note that a month ago unemployment rate in the USA fell to 4.9%. 

Nevertheless, in order to convince market participants that economic growth in the country is stable, it is necessary to prove it by constant positive economic performance. 

The decline in some stock indices is approaching 20%. If the decline continues “bullish” trend can change into the “bearish” trend. 

Index S&P500 has been declining since beginning of December; it fell by 0.15% and almost reached the level of 1807. At the moment, the index has adjusted reaching the level of 1935.0 (Fibonacci 38.2%). Although the minutes of the meeting show that the US Fed is reluctant to continue monetary policy tightening, the rise of the index S&P500 above this level is unlikely. Bearish sentiments prevail in the market. It seems that only joint efforts of the world’s central banks can change negative trend.

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