How China’s New Money-Printing Scheme Will Affect the Market This Week

This coming week is still under the shadow of the war in Ukraine.

A concept image of the flags of the United States, China, and Japan juxtaposed on concrete slabs jutting into each other.

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Despite a drop in oil prices for a few days last week, they once again started to tick back up again on Thursday. So far, stock prices have not suffered from the rally in energy prices.

As we told you over the last two weeks, support on the S&P 500 should hold for now even if prices rise. However, we will want to watch the daily news flow for any warning signs that gas and oil prices (along with inflation) will spike higher again.

Once again, our outlook for the coming week feels a little dire, but it’s not as bad as it could be.

On Our Watchlist

We have been saying for a few weeks that dip-buying should be focused on consumer discretionary and technology stocks, like…

  • Target (NYSE:TGT)
  • Costco Wholesale (NASDAQ:COST)
  • Nike (NYSE:NKE)
  • Microsoft (NASDAQ:MSFT)
  • Nvidia (NASDAQ:NVDA)

Those were the top two sectors last week, chalking up nearly 9% in gains over a few days.

We think our forecast for these two sectors is still valid this week because the market will probably get a little outside help. This time, it’s not the Fed with a new money-printing scheme; it’s China with its own new money-printing scheme.

Well, the People’s Bank of China (PBOC) hasn’t started “printing” more money as stimulus yet, but it looks very likely that they will. These things usually start with the government backing off on industry regulations, and that’s what we saw last week.

What to Watch Out For

You may or may not see a big announcement from China that they are pushing cash into the market next week, but it’s almost certain to happen, and the U.S. markets stand to benefit… at least indirectly.

The relationship between the U.S. markets and the Chinese economy is a complicated one, but for now, we think it’s safe to focus on the fact that the PBOC’s actions will help buffer some of the volatility triggered by the Ukraine unrest.

As you know, the Fed decided to hike the overnight interest rate by a quarter percentage point last week. So far, investors have been placated by the Fed Chairman’s confidence in the U.S. economy and promise to be flexible about future rate hikes as needed.

However, there is a pattern with Fed announcements like this. First, the announcement is made, and the Fed governors and chairman lay low for a few days. By the following week, they are usually out in force at conferences and making speeches.

We don’t know why the Fed piles up all these appearances so soon after meetings. Unfortunately, traders are still on edge these days about any hints that interest rates will have to rise far higher and faster to stave off higher inflation, and a couple of wrong words at a speech can set off some selling. So, look out for market volatility today and Wednesday when Fed Chairman Jerome Powell will be speaking.

Summing Up

China is backing off their crackdown on the tech sector, and this is likely a precursor to monetary stimulus. U.S. stocks should benefit from this as well as sentiment improves.

We still like the retail and tech sectors for great bargains.

Don’t forget to tune in tonight at 7:00 p.m. ET on our YouTube channel for our weekly livestream. Tonight, we’re talking about how a lot of last week’s rally in the stock market was due to shifts in China’s policy for tech stocks — and a promise to pull back on oversight and restrictions is a precursor to more efforts to support the Chinese economy, and indirectly, the U.S. stock market.

We’ll be back with you on Friday.

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