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Global Stock Prices May Rally Post Fed, Dovish Rate Hike Likely

Global Stock Prices May Rally Post Fed, Dovish Rate Hike Likely

Martin Essex, MSTA,

Global stock prices, news and analysis:

  • Stock prices are continuing to drop worldwide, with the S&P 500 closing Monday at its lowest level since October 2017.
  • However, the Federal Reserve could provide some relief if it raises US interest rates Wednesday but accompanies its announcement with a dovish outlook.

Dovish Fed may benefit stocks

Global stock prices are continuing to weaken but a bounce is possible later in the week if the Federal Reserve announces a US interest rate increase Wednesday but lowers expectations of a further tightening of monetary policy next year.

The Federal Open Market Committee is set to raise rates by a quarter of a percentage point to the 2.25%-2.50% range but it could well drop its previous references to “further gradual increases” in rates – suggesting a pause next year. In September the central bank forecast another three quarter-point hikes in 2019 but the CME FedWatch tool is currently suggesting a 45% chance of no further rises at all next year.

That should boost Wall Street’s S&P 500 index, which has been falling on signs that global economic growth is slowing.

S&P 500 Price Chart, Daily Timeframe (September 11, 2017 – December 18, 2018)

Latest S&P 500 price chart.

Chart by IG (You can click on it for a larger image)

A truce in the US-China trade war should also help stocks, which perhaps could yet benefit from a so-called Santa Rally, and also lower US stock volatility. The VIX index, known as the markets’ “fear gauge” is currently at its highest level for seven weeks.

CBOE Volatility Index Price Chart, Daily Timeframe (September 10 – December 18, 2018)

Latest VIX price chart.

Source: Investing.com

More to Read:

How to Measure Volatility

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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