Futures in the United States are down while those in Europe are up as investors await the European monetary policy statement along with the European Central Bank’s (ECB) press conference. Investors in the United States can use these events to try to understand how the Federal Reserve may proceed with tapering in its meeting next week. Overall, in October, stock markets have been upbeat, supported by strong earnings. However, rising uncertainty regarding the future outlook of equities is high because of rising input costs, supply chain constraints, and initiation of tapering.
In yesterday’s session, the Dow Jones Industrial Average dipped 0.74%, while the S&P 500 index slumped 0.51%. The Nasdaq, the tech-savvy index, was flat, while the Russell 2000, the small-cap index, fell 1.90%. So far this month, the S&P 500 has gained 5.6%, putting it on track to have its best month since November of last year.
Stock Market
Investors should remember that GDP growth rate, on a quarterly basis, is scheduled to be released today. Due to various concerns, mainly surging consumer prices and supply chain bottlenecks, financial institutions have revised down their growth projections depicting a likely slowdown in economic growth in coming months. Goldman Sachs revisited its initial forecasts and brought down its GDP projection for the third quarter to 2.75%. Moreover, the financial giant has also revised its 2021 and 2022 annual forecasts from 5.7% and 4.4%, respectively, to 5.6% and 4.0%, respectively.
Stock traders should understand that the American economy is facing multiple challenges right now. Supply chain issues are one of the biggest drivers of high volatility. Currently, almost $24 billion worth of products are stuck at ports in California alone. The bottlenecks occurred because of the swift economic recovery seen during the first half of 2021, when the easing down of lockdowns and extensive vaccination campaigns curbed the spread of the coronavirus and brought consumers back to markets. Similarly, companies are also finding it difficult to fill vacant positions due to labour shortages. In August, nearly 4.3 million employees quit their jobs, and there are nearly 10.4 million jobs vacant.
The issues at hand, are in turn fuelling inflation, which is at its highest level in 30 years. Supply chain bottlenecks are expected to dwindle into 2022. However, not everything is negative, as economies around the world continue to recover from the rock-bottom situation witnessed in 2020. If authorities work hard to address the difficulties efficiently, the economy in the United States has nowhere to go but up.
Cryptocurrencies
Over the last few days, if not months, crypto prices have been surging and Bitcoin, the benchmark of cryptocurrencies, has broken down the door to a new all-time high. Currently, we are seeing some retracement in prices as investors are cashing out their profits. However, any drop in prices should only be seen as an opportunity to bag some digital coins at bargain prices.
With the launch of crypto ETFs, financial institutions have become optimistic regarding digital assets, as can be seen through Citi’s bullish stance on Coinbase. The firm became publicly listed in April and achieved a market cap of $110 billion in its first day in the stock market. Companies like Coinbase are hot right now as they can be potential targets for behemoth companies who want to get into the blockchain space. The company’s stock price is currently hovering around $320 and is expected to rise to $415, as projected by Citi.
On the other hand, investors should keep in mind that a rise in regulations around cryptos is still a concern. Having said that, traders should view increased regulations as a positive because it means that their investments will become more secure, bringing more traffic to crypto investments from people who are still concerned about this issue.
Oil
Finally, there was some good news for consumers as oil prices declined after crude oil inventories data in the U.S. showed an unexpected rise. Moreover, inventories of other fuel commodities also climbed. According to the data released, inventories of crude oil jumped 2.3 million barrels last week while the expected rise was 1.9 million barrels. Similarly, stockpiles of gasoline surged by 500,000 barrels. Moving onwards, investors can likely expect some retracement in crude oil prices as markets seem to be overbought and hence a correction is likely due.
Gold
The dollar index, which measures the American greenback against other major currencies, dropped 0.1%, while yields on treasury bonds dipped to their weekly lows. The yellow metal took support from these changes as the opportunity cost of holding it dropped. However, upcoming meetings of central banks are likely to cause volatility for gold over the next few weeks.
Geopolitical Tension
The alleged testing by Beijing of its hypersonic armaments has caused a stir in the United States. The stated weapons could be very unsettling for the U.S. military as the technology could very well launch nuclear warheads through American anti-missile systems. China has negated all such accusations. Any skirmish between the two biggest economies in the world could prove to be potentially detrimental to global economic growth and stock markets in general.
Asian Pacific Markets
After historic regulatory crackdowns by Beijing, which pounded stock prices of Chinese companies down, sentiment regarding Chinese stocks has turned around from pessimistic to optimistic. Well-known brokerages such as UBS and HSBC Holdings have stated declining regulatory fears and lower valuations as reasons for taking exposure to the Chinese stock markets.
As of 11.33 p.m. EST, the Nikkei dropped 0.94%, and the Shanghai index fell 0.98%. The Hang Seng index, in Hong Kong, dipped 0.41%. The ASX 200 index slumped 0.48%, and the Seoul Kospi declined 0.08%.
