Do you see a crisis in the American market?

Jerome Powellpresident of the Federal Reservefaces one of the greatest challenges of his administration: to reduce inflation that ended last year at 5.1% until reaching the goal of 2%, without leading the US economy into a recession.

Why is a problem? We must understand that the central bank’s tool to control inflation is to raise the interest rate, however, increasing the cost of money discourages family consumption and private sector investment, which leads to less economic activity. , which can lead the United States to this scenario.

On the other hand, it is known that this upward cycle of interest rates by the US central bank has been the most aggressive in the last 40 years.

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Additionally, the speed at which this monetary policy impacts the foreign exchange market and the real economy are different, while currencies depreciate or appreciate almost immediately after the action of the federal reserve, the real economy or the activity The economy receives these impacts late, and experts agree that the US economy still has not fully internalized the fact that financing costs have more than quintupled in a single year.

“The market is very euphoric anticipating that the Federal Reserve will soon stop raising rates, and even that it would turn towards a rate reduction stance to reactivate the economy, however, the latest figures from the labor market make it difficult for this hypothesis quickly become a reality, an increase in the number of non-farm payroll workers that is almost triple the expected value, and the lowest unemployment rate in the last 50 years, provides strong grounds to think that the Fed will not yet give its arm to twist and continue to raise rates, disappointing investors, and causing a significant market crash with this decision,” says Washington López, Economist and CEO of Washington Capital.

For Óscar Corpancho, Variable Income Manager of Prima AFP, the returns of the American stock market will remain limited by the valuation levels, the high expectations regarding corporate results and a restrictive monetary policy that seeks to attack the excess demand of said economy.

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“The American stock market continues to be the most expensive stock market that exists globally, even against its own history. The restrictive monetary policy process seeks to cool the economy in order to attack inflationary pressures. Said restrictive monetary policy should generate lower levels of growth and negatively affect the profits of American companies, through the financial and credit channel. On the other hand, the condition of extremely high margins of the companies makes the possibility of new expansions due to operational levers very complicated and on the balance sheet the probability of lower margins is higher”, asserted.

For Corpancho, the valuations continue to be more expensive than they should be in the deceleration cycle stage with USA growing below its potential. “It is very probable that there will be an adjustment in the earnings outlook and this will ultimately mean that the returns are not very good on the American stock market.”