Stocks were down on Monday as investors expected the Federal Reserve's fiscal policy pronouncement later this week. The S&P 500 fell below last week's record high.
The three leading indices all dropped. Crude oil prices in the United States have remained stable at around $71 per barrel. Treasury rates decreased across the yield curve, with the benchmark 10-year yield below 1.5%. Bitcoin has fallen below $47,000.
This week, investors' attention will focus on the Federal Reserve's December policy meeting, scheduled between Tuesday and Wednesday. Mid-week sees the release of a new fiscal policy comment and a briefing with Fed Chair Jerome Powell and the Fed's revised Summary of Economic Projections, detailing various members' perspectives on the economic situation and interest rates. Meetings with representatives from the Bank of England and the European Central Bank are also planned for this week.
The Fed's statement has gained weight as the market tries to forecast how authorities will weigh stubbornly high inflation against the threat of a new COVID-19-19 outbreak with the new Omicron type. Last week's Consumer Price Index (CPI) indicated that inflation in the United States climbed at its quickest speed since 1982 November, highlighting the continued imbalance between supply and demand in the rebuilding economy.
According to statistics provided by the New York Times, the Omicron form has been found in 30 states so far. As Pfizer's preliminary studies indicate, the strain is more transmissible than the previous Delta type but may cause less serious symptoms and be neutralized by several doses of the COVID-19 vaccine. The World Health Organization stated on Monday that the Omicron strain remained a "very high" worldwide risk while stressing that there is not yet enough information on the course of the disease.
However, given the rising inflation and the improving economy, it is likely that the Fed will announce further cuts to its asset-purchase program at the end of this week's meeting, thus reducing one of the core instruments of the central bank that helped to stabilize the economy during the crisis.
David Kostin, Goldman Sachs chief U.S. equity strategist, mentioned that both equity and fixed income markets seem to be evaluating the Fed's upcoming policy tightening.
At the Fed's meeting this week, the company anticipates the Fed to boost the tempo of tapering, increasing monthly purchases of Treasuries and agency mortgage-backed securities to $30 billion per month from $15 billion.
Historically, asset values have been flat around the time of the first Fed hike, as Kostin pointed out. Furthermore, several of the equities with the most extended term and highest values have fallen in the last month, implying that the stock market pricing of Fed tightening has begun.
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