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Make Or Break Week

By Craig ErlamMarket OverviewJan 24, 2022 11:46AM ET
www.investing.com/analysis/make-or-break-week-200615739
Make Or Break Week
By Craig Erlam   |  Jan 24, 2022 11:46AM ET
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Another woeful start to trading on Monday, as heightened geopolitical risk compounds investor anxiety and drags on risk assets.

It could be a make or break week for the markets, with the Fed meeting on Wednesday, big tech earnings, and ongoing tensions on the Ukraine/Russia border. That may sound a bit over the top given how deep a correction we’ve already seen, particularly in the Nasdaq, but it could get much worse before it gets better.

Wednesday is going to be massive. The Fed needs to strike the right balance between taking inflation seriously and not wanting to cause further unnecessary turmoil in the markets. Not an easy balancing act when four hikes are already priced in, alongside balance sheet reduction, and some are arguing it’s not enough.

That’s a lot of pressure for a meeting that’s not really live, but investors will be hanging on every single word. It won’t take much for the Fed to add to the anxiety, but if they manage to strike the right chord, it could help settle the markets and draw investors back in.

And then there’s earnings. Netflix (NASDAQ:NFLX) got things off to a rotten start for big tech, but there’ll be plenty of opportunities to turn that around this week. The Nasdaq has fallen more than 16% from its highs and sits very close to bear market territory. Will investors be tempted back in at these levels if the other big tech names deliver?

Whatever happens, it promises to be a really interesting week in the markets and one that could go terribly wrong or be the turning point. Perhaps that’s oversimplifying things, but when fear is in control as it seems to be now, it creates these kinds of extremes.

Weak PMIs as Omicron weighs

The PMIs we’ve seen today won’t exactly be helping the mood, but we should take them with a pinch of salt, given the impact that Omicron will have had. While the data won’t have helped to lift the mood, it won’t change the outlook for interest rates either. The services sector was hit particularly hard, especially in the US, but again that’s to be expected under the circumstances. There was cause for optimism in some of the UK service’s forward-looking components, which bodes well for the coming months, even as higher energy costs and taxes hamper households and businesses.

A major test of support coming for bitcoin

Another miserable day for Bitcoin. The digital currency continued sliding after surpassing the 50% mark a little over two months after hitting record highs. It’s in freefall once more and really suffering in these risk-averse markets.

We’ve seen this before, though, extreme moves work both ways, and while the market has matured over the years, it is still a highly speculative, high-risk asset class. And high-risk assets are being battered.

But bitcoin now has a real test on its hands. The psychological blow of losing $40,000 is nothing compared to what happens if $30,000 falls. This is a major level of technical support that held throughout 2021, despite numerous tests early in the year and then throughout the summer. If this falls, it could get very messy.

Make Or Break Week
 

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Make Or Break Week

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Comments (3)
Rob Fordham
Rob Fordham Jan 24, 2022 9:34PM ET
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The fed does not need to do 4 rate hikes this year. The fed never said that. They just need to start and be data dependent inflation has probaly peaked already and as omnicron abates and supply get right it will come down some. This market is panic for no reason.
Aaron Pierett
Aaron Pierett Jan 24, 2022 7:37PM ET
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this isn't a make or break week. the market is behaving exactly as expected. see more selling later into the week and buyers stepping in for a couple weeks in February before the hammer comes down in late Feb to early March
Al Ose
Al Ose Jan 24, 2022 5:48PM ET
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If fed has to be as careful in weds communication as this article suggests i have to wonder if i want to buy into such a fragile market right now?
 
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