S&P 500: November started on a positive wave


The last full trading month of the outgoing year has begun. Already in early December, investors will start to sum up the results of a difficult year, and after December 20, market participants will prepare for the Christmas holidays and the new year 2022, and, as it often happens, during this period of time (after December 20), sharp speculative movements may occur on the market on the eve of the emergence of new trends.

This week promises to be very interesting and volatile, with many trading opportunities. In addition to the fact that on Friday the US Department of Labor will publish its next monthly report on the state of the American labor market, on Tuesday and Thursday the central banks of Australia and the UK will hold their regular meetings on monetary policy issues. However, the focus of market participants will be on the Fed meeting, which starts tomorrow and ends on Wednesday with the publication (at 18:00 GMT) of the decision on the interest rate.

US central bank executives are not expected to raise interest rates yet, but will announce the start of phasing out stimulus policies. Recall that the Fed has maintained its key rate at 0.25% since March 2020, purchasing at least $ 120 billion in government bonds and mortgage bonds every month since June 2020.

But even if the Fed begins to reduce the volume of purchases in the bond market, its monetary policy will still remain soft.

Speaking at a conference in late October to mark the centenary of the Bank for International Settlements, Fed Chairman Jerome Powell reiterated the central bank's intentions to begin cutting back on bond purchases soon. However, to raise rates, in his opinion, now "it would be premature". “Now is the time to wind down stimulus, not hike rates, and the Fed is on track to complete the stimulus winding process by mid-2022”, Powell said.

According to the minutes of the September Fed meeting, only half of 18 executives expect that interest rates will need to be raised by the end of 2022, and almost all executives anticipate another rate hike in 2023.

Thus, despite the beginning of the reduction of stimulus volumes, the soft policy of the FRS and other major world central banks will help maintain the positive dynamics of stock indices.

Today, futures for major US stock indices are growing again amid expectations of the Fed's monetary policy decision and another portion of positive corporate reporting by US companies. Thus, according to FactSet data, which became available last Friday, about 82% of S&P 500 companies have already reported results that exceeded analysts' earnings expectations.

Several other large companies are due to report today, including PG&E, Clorox, McKesson and Simon Property Group, and buyers of these companies' shares are also in a positive mood.

Continued demand for goods and services from companies that have already reported results have allayed investor fears that supply chain disruptions and price increases are weighing on consumer demand.

The ongoing recovery of the American economy amid the Fed's soft policy supports the propensity of investors to buy profitable risky assets. Rising commodity prices, primarily for energy sources such as coal, oil, gas, in turn, contribute to the growth of shares of energy and mining companies, also pushing stock indices up.

However, market participants are still worried that inflation has become a more serious problem for the Fed, and soon the US central bank may also announce its intention to start raising rates earlier than planned. For example, in the third quarter, wages in the United States increased by 4.2% (in annual terms), and this growth was the strongest since 1990, since the shortage of personnel in many industries forced employers to raise wages. For example, McDonald's Corp. in the US salaries have risen by an average of 15% this year, and the chain is still struggling to recruit staff, according to company officials. At the same time, in the last four months, inflation has exceeded 5%, accelerating to highs in several decades.

Therefore, market participants will carefully study the results of the November meeting of the FRS in order to understand its intentions regarding further plans.

Meanwhile, as of this writing, S&P 500 broad market index futures are traded near 4627.0, today's local and new all-time highs, maintaining long-term positive momentum. Long positions are still preferred.

And yet, volatility will rise today, as usual, at the beginning of the American trading session, which is also likely to be helped by the publication (at 14:00 GMT) of the purchasing managers' index (PMI) for the manufacturing sector (from ISM), which in October is expected to drop to 60.5 from 61.1 in September. This would indicate that manufacturing plants are still dealing with a supply crisis that has made it difficult to find raw materials and other resources.

Despite the relative decline, this is still a strong indicator, which is well above the value of 50, which separates the increase in activity from its slowdown. Most likely, the publication of this indicator will have a positive impact on the dollar and American stock indices.