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Another Negative Week for the SNP500

One of the biggest stories in the market is the significant decline we are seeing in the US Stock market. The US Stock market, including the SNP500, NASDAQ, and DowJones, was one of the hottest assets of 2020 and 2021 with the SNP500 increasing by a whopping 115% since the first lockdowns were introduced in the US.

It is a very different story this year and traders are wondering whether the stock market will find support or if the price will continue to decline to prices witnessed in early 2020 and 2019.

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Currently, the price of the SNP500 remains in the negative zone. The index seems to be on the verge of completing its third bearish week, which is currently measuring a decline of 11.48%. Yesterday, the price had witnessed a strong decline which is understandable considering this week's economic events. This morning the pre-market open price, which can be seen on futures, is currently slightly increasing. The price has increased by 0.33% and traders are wondering whether we may see a rebound today or if the decline will keep hold.

Currently, there are both positive and negative factors that are influencing stockholders and investors. The negative factors are related to higher interest rates, fear of recession, and low-risk sentiment.

This week we saw the Federal Reserve increase interest rates by 75 basis points which is the strongest single rate hike since the 1990s. Why is the Fed increasing interest rates? Well, the method is known as contractionary monetary policy and it is aimed at lowering the level of inflation by purposely attempting to lower demand. Think of it this way, if your mortgage and loan monthly payments increase you will have less disposable income and therefore will spend less. This may force producers to lower their prices.

This directly affects the stock market as well as other correlated assets. The stock market is witnessing lower demand as investors fear that they will have less disposable income and company profits will decline due to less consumer demand.

Then we also have the fear of a recession and low-risk appetite, these are both partially connected. Economists and bankers have both warned of a possible recession due to the current energy crisis and worsening globally GDP figures. The issue is also related to the Ukraine-Russia conflict as well as fear of limited supply. When individuals fear a recession it causes a domino effect throughout the economy whereby investors are less willing to invest and want to keep their capital in cash or less risky assets. This is a factor that contributed to the SNP500 declining by 23.55% this year alone.

With regards to individual companies, there has been some positive news with the partial reopening of the Chinese economy. For example, Starbucks has advised that 600 out of their 900 coffee shops in Shanghai are ready to reopen, including their largest coffee shop. The reopening came after an almost two-month suspension due to the lockdown, which led to a 23% drop in April comparable sales in China. There is also similar positive news for other companies which operate in the Chinese market.

However, it should be noted that it is important to monitor all factors affecting the stock market including price and trend analysis. Traders will continue to monitor the risk sentiment within the market and soon will start looking towards the next quarterly earnings reports from SNP’s major companies.

IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.
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