October 3, 2022

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DNB Markets: - It is not a positive for the stock market

DNB Markets: – It is not a positive for the stock market

After the strong rally in the stock markets in July, the development in the first week of August was more subdued.

“Overall, stocks and interest rates have moved in the opposite direction throughout the year, but the relationship has been particularly strong this summer. It is clear that the decline in interest rates since mid-June has facilitated the strong rally in the stock market in the same period,” wrote analyst Ingvild Borgen Gjerde in a report from DNB Markets.

Not positive for the stock market

She asserts that it is strange that the stock market rose so much this summer when interest rates fell due to growing concern about a recession in the US economy, which is not positive in any way for the stock market. According to DNB Markets, Friday’s labor market numbers helped reduce recession anxiety, while concerns about inflation, and thus an interest rate hike from the US central bank, became slightly larger.

“The verdict in the stock market on Friday is that this is generally negative. Putting to the extreme, it might sound as if a stock investor would prefer stagnation and low interest rates to higher interest rates and not stagnation. Understand who can. Years of super-expansionary monetary policy Printing money and zero interest rates means that markets are not completely behaving according to the book,” writes Borgen Gerdy.

strong numbers

Labor market numbers released on Friday were strong, indicating that inflationary pressures in the US economy will not abate anytime soon. Employment increased by 528,000 in July, while an increase of 250,000 was expected. Meanwhile, wage growth rose from 0.4 percent in June to 0.5 percent in July. Here, wage growth was expected at 0.3 percent.

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The market is now pricing in nearly a 90 percent chance of another 75 basis point rate hike at the Federal Reserve’s September rate meeting.

The Federal Reserve has a job to do

“The labor market numbers have done little to change the fear of a recession in the US economy, and may only have changed the view about when it will happen. At the same time, the numbers have shown that inflationary pressures remain strong, and that the Federal Reserve still has a job to do. , and that interest rates should be raised further,” writes Borgen Gerdy.