Market experts believe there is substantial downside risk for the US stocks in the near term as interest rates continue to be low and a rising dollar could threaten the rally in crude oil.
The S&P is projected to decrease to around 1,950, or maybe, even lower. In the recent past, the global markets have dropped $3 trillion post-Brexit.
The leave vote is expected to obstruct the Fed’s plan to increase interest rates in 2016. Low-interest rates facilitate multiplication of stock and equities that act as a substitute to the bond. Again, they are a significant challenge to the financial domain.
Low rates of interest indicate that banks would not be able to easily generate revenue from lending.
The market is also dealing with currency uneasiness following the Brexit vote. If the dollar strengthens, it would be very difficult for oil prices to rise to higher levels.
A robust greenback would indicate that the dollar-denominated oil would become very expensive to those holding other currencies.
Several sectors, including oil & gas drillers and service firms, have been affected by an almost two-year oil price fall.
Though crude prices decreased post-Brexit, they have not been impacted severely, in spite of an increase in the strength of the dollar.
The Fed is projected to be dovish with regard to rates. The US could become a safe haven because of the impact of Brexit on the pound.
According to Paul Hickey, co-founder of Bespoke Investment Group, “When you have one of the largest economies in the world see their currency drop like an emerging market currency, people are going to shift capital out of those areas.”
The crash of the pound could make emerging economies assets very attractive. The market players are forecasting greater downside with regard to assets in the EU. It would be prudent on the part of investors to hold cash.
The FTSE 100 could benefit in the near-term since the lower pound would be a positive news to several multinationals in the index. The turbulence in the global markets is expected to continue due to the geopolitical uncertainties.
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