US futures recovered slightly in morning trading on Tuesday after yesterday's sell-off, the largest for the S&P 500 index since May of this year. Other world indices also sank seriously. The main problem for traders and market participants, which raises concerns, is the meeting of the Federal Reserve System and the protracted variant of the spread of the Delta coronavirus strain. Potential economic shocks in China and problems with increasing the US debt limit also cause several problems for traders when determining their strategies.
At the end of yesterday, the S&P 500 index fell by 1.7%, and the daily low was at around 5% from its maximum. The Dow Jones Industrial Average fell 614 points or 1.8%, the biggest one-day drop since July 19. The Nasdaq Composite index fell 2.2%, as the blue chips suffered the most.
Some leading experts in this field note that the market sell-off that occurred yesterday is also associated with several technical issues. First of all, in conditions of low liquidity and finding the market at its highs, increased risks led to a sharp closure of positions with hedgers, which pulled down many other markets.
Already today, the Federal Reserve has begun its two-day monetary policy meeting, and investors are waiting for more information from Chairman Jerome Powell about the Central Bank's plans to reduce the bond purchase program. In particular, many are waiting for specific dates when this may happen – this is a bad sign for the stock market as a whole since the redistribution of assets from the capital market to bonds will begin. Last month, Powell said that he sees a slowdown in the pace of the Fed's purchases of $ 120 billion of bonds this year. However, he did not mention when the program would begin to wind down, which did not impact the markets. Tomorrow, the Federal Reserve System will publish its quarterly economic forecasts and the so-called dot chart, and the statement on interest rates will be made later in the evening. At the same time, Fed Chairman Jerome Powell will also hold a press conference.
Many investors expect that the Fed will not do anything that can scare the market. However, the fact of its sharp fall already speaks for itself. More traders are confident that the influx of "cheap" money will soon end, and not the easiest times will begin, when the inflated background bubble will slowly deflate.
The general weakness has not passed without a trace for the Chinese market. The Hang Seng index fell by 4% after news that one of the largest Chinese developers, China Evergrande Group, is on the verge of default.
As for the coronavirus strain, its next variant Delta remains a global threat to different countries' health and economic growth. There are cold months ahead, only worsening the situation since many citizens still do not dare to get vaccinated.
As noted above, investors are also concerned about the deadline for raising the debt ceiling and the possible consequences of delaying this issue. The story did not end with an increase in the tax burden. The US Congress returned to Washington after a break to pass funding bills and avoid a government shutdown. The deadline is September 30.
But, despite yesterday's fall, I do not believe that this small pullback poses a danger. It can be considered a reasonable purchase opportunity. The volatility may be much greater after tomorrow's meeting of the Federal Reserve, so be prepared for the fact that the market will sink even more – this is an excellent time to build up long positions.
