A bad sign: consumption in America is settling down 

Large-area American stores, Wal-Mart and Target, have published results that are unfortunately not optimistic. The share price of the first of these companies has fallen by almost 25 percent since the April peak, and the second by about 40 percent.

The data on the trading giants seem significant against the background that the US economy is spinning largely thanks to consumption and life on credit. Meanwhile, the decline in consumption caused by inflation may be an alarm signal and heighten the fear of recession, which in the current inflationary environment is raising the specter of a return in the US stagflation from the 70-80s. last century.

A complete set of disturbing factors

However, declining consumption and more expensive goods are only some of the reasons for concern. In addition, there is an increase in interest rates on loans due to interest rate increases, supply chains broken in the era of the pandemic lockdown, and the dollar road against other major currencies in the world, which may limit the profits of American companies from exports. According to some economists, this creates a perfect set of factors that could push the market further into the awakening bear.

When will inflation come to a halt?

In a more optimistic scenario, however, it can be expected that inflation in the US will peak in the second or third quarter of this year, and then from the fourth quarter it will start to decline. Then also consumers could breathe a sigh of relief. The same could be true of the stock market, which statistically appeared to correct in the first reaction to interest rate hike cycles, and then continued earlier trends.

The cash phase of the cycle

Only yesterday, the US Dow Jones index fell by 3,57 percent S & P 500 by 4,04 percent, which was the largest one-day decline since June 2020. From the beginning of the year, the Nasdaq index fell by 27 percent, the S&P 500 by over 18 percent, and the Dow Jones by less than 15 percent. US 10-year bonds, in turn, fell by 8 percent, and gold fell by 0,5 percent. Meanwhile, the US dollar gained about 8 percent.

This quite clearly suggests that there is a cash cycle in the investor markets. According to the theory, it may be followed by the obligatory phase of the cycle, and only then the stock phase. Investors can therefore wait for the moment when they recognize that the full cycle of interest rate increases by Federal Reserve. Then their capital could start to turn away from the dollar towards bonds or stocks, which could slow down the current declines in the stock markets.