Will the correction come by the end of the year?

In the end, November did not live up to expectations and was far from as nervous as originally expected. The presidential election was held without major setbacks, and voters can officially declare next week that Biden is the winner of the election. Positive news about the vaccine has shaken the latest bears in the stock markets, but December shows that a correction may still come. The reason is the growing pandemic, Brexit, the US-China trade dispute, or the slow progress in negotiating the US fiscal package, which has gained in importance after labor market data.

This week will tell

It seems that next year we will witness a peaceful handover of presidential power in the USA, at least that can be deduced from the statement of the current US President Donald Trump. He said that if voters elect Joe Biden as the winner of the election, he will recognize the result. He also commissioned his team to begin handing over power to Joe Biden. One of the biggest sources of risk has been heard from the markets, and given the very positive news about the development of the vaccine and its early approval in Britain, the markets have a favorable wind in their backs. However, the situation is changing very quickly and recent days have shown that it may be too early to rejoice in partial success. There are several potential catalysts for possible correction, and many of them will be the focus of attention this week.

Far from normal

EU chief negotiator Michel Barnier said yesterday that he could not guarantee an agreement with Britain and that the last day by which the agreement can be ratified is Wednesday. Which is today. This means that the British pound will be quite volatile until the week is over more so due to the EU summit which will be taking place in Brussels this Thursday. The pandemic, which claimed a record number of hospitalizations, infections, and deaths in the United States last week, also continues to draw attention to itself. The beginning of the week shows that there are no signs of slowing down yet, which can still be very negative. The worst situation is in California, where people are advised to stay at home, bars are closed, and most shops and services are closed as well. It is the most economically strong state in the USA and further restrictions could already significantly affect economic activity. At the same time, Joe Biden is pushing for the mandatory wearing of facemasks and possibly a widespread federal quarantine that would isolate the virus.

Endless waiting for government support in the US

The US-China trade dispute is also an inconspicuous source of risk. Donald Trump's administration, just before the end of his term, is increasing pressure on China after recording a record trade surplus thanks to exports to the United States. The United States has imposed new sanctions on 14 members of the Chinese Congress, largely due to China's activities in Hong Kong. Last but not least, investors have a relatively negative perception of the negotiations on the US fiscal package. It was renewed last week, however, in recent days it appears that the imaginary deadline, which was to occur this Friday, will be postponed again. Investors' eyes are on the fiscal package mainly due to worse numbers from the US labor market. Its importance has been emphasized several times since August by Jerome Powell, which has been 4 months already. If it is not clear by the end of the year, it may be a disappointment and at least part of the positions might be sold.

However, let's not expect a correction of 20-30%. From the point of view of technical analysis, stock indices offer several very interesting levels where the market could rebound, which should be enough. For example, watch out for the 100-day moving average on the S&P 500. Growing nervousness is confirmed by gold, which reached over $ 1,850. The trend next year has not much to be afraid of. Because the vaccine is a huge source of reassurance and monetary and fiscal policy will keep valuations high. Consumption also remains high so far and the results for 4Q will probably be promising as well.

Denní graf indexu S&P
Chart: Daily chart of the S&P 500 index (Source: cTrader PurpleTrading)
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