On the world stock exchanges, stock prices rose strongly last week because inflationary pressures in the US and other Western countries are easing, so investors believe that the cycle of monetary policy tightening is over. On Wall Street, the Dow Jones rose 1.9 percent last week, to 34,947 points, while the S&P 500 gained 2.2 percent, to 4,514 points, and the Nasdaq index 2.4 percent, to 14,125 points.
Most of those gains are thanks to a strong rise in stock prices on Tuesday, when it was announced that the US inflation rate slipped to 3.2 percent in October, from 3.7 percent in September. The easing of inflation supports the thesis that the Fed will not need to further tighten monetary policy.
Relatively stable growth
In addition, a series of recent data shows that the economy continues to grow relatively stably, that is, despite the sharp increase in interest rates in the last year and a half, it has avoided recession. Since March last year, the Fed has increased key interest rates by 5.25 percentage points to curb inflation.
However, at the last two sessions, the leaders of the Fed left interest rates unchanged, so investors believe that the cycle of money price increases is over, although the Fed says that further tightening of monetary policy is possible.
- It is completely clear that these data stimulated a strong growth in share prices. The easing of inflation supports the thesis that the Fed will not need to further tighten the monetary policy in order for the growth of consumer prices to weaken – says Craig Fehr, a strategist at the Edward Jones company.
But after the sharp jump in share prices on Tuesday, the rest of the week was cautiously traded. Higher interest rates will reduce lending and thus consumption, which will slow down economic growth and squeeze company earnings. Therefore, some investors are not willing to take additional risks, while some believe that there is still room for market growth and that it is a favorable opportunity to buy shares.
Share prices also rose on European stock exchanges
- In recent days, the market has started a tension between those who want to take profits from the market, after the strong rise in stock prices at the beginning of the week, and those who consider it a good opportunity to buy – explains Brian Jacobsen, economist at Annex Wealth Management.
In the next period, market movements will depend mainly on speculations about when the Fed could start reducing interest rates. In the money market, it is estimated that the first interest rate cut by the Fed could follow in May of next year.
Share prices also rose on the European stock exchanges, thanks to the easing of inflation in the eurozone. According to the Eurostat report, inflation in that block was 2.9 percent in October, significantly less than September’s 4.3 percent. The London FTSE index gained 1.95 percent last week, to 7,504 points, while the Frankfurt DAX jumped 4.5 percent, to 15,919 points, and the Paris CAC rose 2.7 percent, to 7,233 points.