The Market Will Be Very Susceptible to Rumors

This week, unstable trading is expected on Wall Street as the U.S. Congress will discuss the White House’s proposal for a military strike on Syria, and all news that could indicate whether the Fed will reduce its accommodative monetary measures as early as September will be closely monitored. The Dow Jones index strengthened by 0.8 percent last week, reaching 14,922 points, while the S&P 500 rose by 1.4 percent to 1,655 points, and the Nasdaq index increased by 2 percent to 3,660 points.

After a decline of more than 3 percent in August, the growth of the S&P 500 index in the first week of September was driven by better-than-expected macroeconomic data from the U.S. economy.

It is growing steadily, but investors are not sure that this growth is strong enough to withstand a reduction in the Fed’s accommodative monetary measures.

Leaders of the U.S. central bank, who will meet in mid-month, have repeatedly indicated that they could reduce the $85 billion programs for purchasing government and mortgage-backed securities if the economic situation improves.

These programs of so-called quantitative easing have supported stock price growth for years, so investors fear that a reduction would deprive the market of significant support.

They are also concerned about the Syrian crisis. This week, the U.S. Congress is expected to discuss President Barack Obama’s proposal for a limited military strike on Syria to punish President Bashar al-Assad for using chemical weapons against the population.

– The market will be very susceptible to rumors. Investors are worried about the possibility that a limited strike could escalate into a broader and longer conflict. Therefore, I expect increased market instability this week – says Tim Ghriskey, director at Solaris Group.

In the last three weeks, investors have pulled more than $15 billion from U.S. equity funds.

Such an outflow from equity funds has not been recorded since August 2011, indicating that investors are fearful of a correction in stock prices after their strong growth since the beginning of the year.

– This outflow shows that investors are concerned about the further movement of the stock market due to a possible price correction – says Jeff Tjornehoy, an analyst at Lipper, who reminds that the last correction of the S&P 500 index, a drop of 10 percent from its previous peak, was recorded more than two years ago.