09.08.2022

Third Fed Rate Hike Will Not Prevent SP500 From Growing 20%

It started, and it has already become known that the profit of banks JPMorgan and Citigroup in the 3rd quarter turned out to be significantly higher than expected. The decline in the prices of shares of financial companies against the background of these reports is primarily due to a noticeable increase in their quotations recently.

Traders are fixing some of the profits, as the financial sector has been the growth leader since the beginning of September, adding almost 10%. In general, the banks’ reporting had a positive effect on the market: the upward trend continued. In the next three weeks, most of the large companies from the S & P500 will report.

In addition to the quarterly indicators of financiers, the sources of good news will be data from representatives of the technology and industrial sectors, as well as the health sector. Of these, I would single out Apple, Alphabet, Facebook, Microsoft, Boeing, Visa, and Johnson & Johnson.

Another driver of growth is the tax reform that Donald Trump and his associates are seeking to implement. The planned changes in the corporate tax rate were one of the reasons for the market growth immediately after the new president won the election. Now more and more details are emerging regarding the reform, and this is also to the liking of investors. I am confident that in order to achieve success in the adoption of the new law, Trump will make every effort: for him this is important after the failure with the health care reform.

Well, the most important and long-term upward driver is the ongoing recovery of the US economy. Unemployment is at the lowest levels in more than 15 years, wages and GDP are growing, industry has revived, consumers are not afraid to spend.

Such trends, together with still quite affordable loan rates, are the main reason for the stable growth on stock exchanges. The DJ-30 and S & P500 indices maintain positive dynamics for the eighth consecutive quarter.

Against this background, the Fed’s desire to raise the rate for the third time this year in December is understandable. Most likely, this will happen, which will not prevent the S & P500 index from completing the year, breaking the level of + 20% in twelve months. The growth speculation is also supported by the unrelenting IPO market activity. There are no fewer interesting offers, and even one more “unicorn” may have time to accommodate before the end of 2017. Dropbox is close to hiring Goldman Sachs as an underwriter, according to Bloomberg. So we keep long positions and look for new buying ideas.

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