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22.01.202112:41 Forex Analysis & Reviews: US stocks exhibited restrained growth

Exchange Rates 22.01.2021 analysis

The US stock exchanges were mixed on Thursday but no significant movements were recorded. The major stock indices completed the trading session in different directions. Although some of the indices, particularly, the S&P 500 and NASDAQ Composite did not support the general trend and once again reached their maximum levels.

Until the last moment, market participants were in high spirits, as they were waiting for the publication of stronger corporate statistics than before. However, now it is becoming clear that the labor market is still unable to recover to its pre-crisis level and government indicators. This means that no positive statistics can change the mood of investors too seriously.

The beginning of 2021 was very difficult for the stock market, but the indices were able to cope with the bulk of the problems that had piled on them and even demonstrated growth. As a result, their increase could be on average more than 2% for each. The reason for the positive dynamics, first of all, was the expectations on the economic recovery in the United States due to the possible ratification of a new, more ambitious financial stimulus program proposed by Joe Biden. Recall that two days ago he passed the procedure of the official inauguration and fully assumed the rights of the president, which only strengthened the hopes of investors.

The extended incentive package was presented last week. Its total amount consists of $1.9 trillion, and items of expenditure include such items as direct payments to American citizens, additional premiums to unemployment benefits, and the extension of the program itself for paying these benefits for a longer period. Thus, the stimulus expansion program looks very attractive to ensure a good recovery and the beginning of the recovery of economic growth in the country. Against this background, stock market indicators felt more than positive and rapidly increased their positions, which led to new record values.

As soon as Joe Biden officially took the presidency, he immediately began to cancel the decrees issued by the Trump administration. Among others, he overturned Donald Trump's decisions to withdraw America from the World Health Organization, as well as from the Prague Climate Agreement. Of course, such political decisions could not fail to remain unnoticed by market participants, who began to more soberly assess the current events.

Among the main news, causing heightened investor interest, was the meeting of the main EU regulator - the European Central Bank. As expected earlier, the regulator did not radically change its policy and left the base interest rate on loans at the same low level at around 0%. The rate on deposits was also not revised and is 0.5%. The rate on margin loans remained at around 0.25%. It should also be noted that the ECB leadership said that key rates are unlikely to be revised until the inflation rate reaches its target and does not gain a firm foothold there. Recall that this level is 2%.

Among other things, at the meeting of the European regulator, the most difficult topic of recent months was touched upon - the rapid growth of coronavirus infection and the fight against the pandemic. According to the latest statistics, the incidence is growing, which will inevitably lead to tougher quarantine restrictions, which means that the pressure on the economies of European states will increase. Therefore, we should expect that in the fourth quarter of last year, the region's GDP will be lower, and the timing of economic growth recovery will be further postponed.

Meanwhile, the supporting factor is corporate reporting, which gradually began to come from large companies. Everything is much better here than analysts previously assumed, which cannot but please market participants. However, this is not enough to support the steady growth of stock indicators for a long time.

There are still many challenges to the economic growth of the United States of America that need to be addressed. In particular, we are talking about the difficult situation of the labor market. The number of new applications for unemployment benefits for the previous week sank 26,000, to 900,000. However, this was a very restrained decline, since, according to analysts' preliminary forecasts, a more substantial reduction should have happened.

The Dow Jones Industrial Average index fell 0.04%, or 12.37 points, which sent it to the level of 31,176.01 points.

The S&P 500 Index gained 0.03% or 1.22 points, to 3,853.07 points.

The NASDAQ Composite Index increased by 0.55% or 73.67 points, to 13,530.91 points.

Maria Shablon,
Analytical expert
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