US stock indices are falling and uncertainty caused by the US government debt limit increase will most likely continue to put pressure on them. Some experts anticipate correction by almost 10%. Uncertainty about fiscal and monetary policy is not allowing the market to follow its steps seen earlier this year when the stimulus program was running at its full power during the coronavirus pandemic. New financial injections will be much harder to count on soon, and in 2022, the cost of debt could rise even higher.
Analysts say that over the next five weeks or so, we may observe another wave of stock market declines. Most will depend on what outcomes the above-mentioned events may bring. According to various estimates, the market is likely to slump by 5% or 10%, especially if the situation with inflation and Covid worsens much more than is currently expected.
Speaking of the monetary policy, one may note that inflationary pressure is much stronger than the Fed predicted in the spring of this year. This means that the central bank is likely to change its monetary policy much earlier than it is expected. Another question is who will take the Fed's chair position for the next four years. Jerome Powell's term expires in January 2021 allowing Joe Biden to replace Donald Trump's appointee Powell.
Recent debates among policymakers over the debt ceiling and the trillion-dollar spending on Biden's proposed infrastructure plan also brought pressure on investors' sentiment. Of course, this week could finish well, which would allow us to very quickly compensate for the market pressure, which is now observed from all sides. At the moment, there is simply no fundamental ground that would help ease the panic among investors even a little bit.
The technology sector will be particularly hard hit. It may lose even more than the main index. According to economists, the drop is estimated at 10-20%. The optimal scenario for investors in such hard times would be to buy shares of companies related to economic recovery and shares of companies where money from the trillion-dollar infrastructure plan will flow in. The energy sector looks way better but it is awaiting a crisis. The finance and industry sectors are showing solid trends too. Consumer products and retail trade sectors also may become attractive for investors.
Speaking of premarket, attention was drawn to Ford stock, which is accelerating its work in electric vehicles with plans to build a new assembly plant in the US along with three battery plants. Ford and South Korean partner SK Innovation are investing more than $11 billion in the project. Shares of Ford rose by 3.3% amid the news.
Thor Industries reported quarterly earnings of $4.12 per share, beating the consensus forecast of $2.92 per share. Revenue also exceeded economists' forecasts. The stock was up by 3.6% in premarket trading.
Merck is close to a deal to acquire drugmaker Acceleron Pharma. There were rumors that Acceleron was in talks to buy an unnamed large pharmaceutical company. Acceleron shares rose by 2.6% in the premarket session.
Spotify Technology launched a global campaign aimed at boosting its ad sales. The streaming music service's new campaign targets small- and medium-sized businesses beyond its main focus. Spotify shares fell by 1.9% in the premarket.
The S&P500 index is possible to break the 4,425 level to the downside. It may put traders in a quandary because the trend is likely to reach the 4,345 low. If the bulls manage to regain control at 4,425, only then a recovery to the high of 4,488 can be expected.
