This article is based on wind and Wall Street knowledge
Since the beginning of the year, the trend of U.S. stocks has fluctuated sharply on a certain night, which is nothing new for domestic investors who woke up in the morning.
Last night was clearly the worst night for U.S. stocks in nearly two years—both the Dow and S&P 500 posted their biggest one-day percentage declines since June 11, 2020. That was a sharp departure from the previous session where tech stocks led the market rally.
After the U.S. stock market fell again on Wednesday, the financial blog site Zerohedge once again compared the trend of the S&P 500 during the year with 2008: U.S. stocks this year have been worse than the same period in 2008.
Some analysts said that concerns about corporate growth prospects and profit pressure are the main reasons for the sharp decline in U.S. stocks again. Markets now widely expect a stagnant or reversed business growth outlook, directly due to rising labor, material and transportation costs. In addition, investors are uncertain whether the value of US stocks will return to the mean.
It has to be said that after the “roller coaster” market in 2020, US stocks have continued to hit new highs in a series of callback forecasts in 2021. As a result, investors’ expectations for U.S. stocks in 2022 were once high.
A 2021 survey by French investment bank Natixis showed that investors’ top forecast for future annual returns for U.S. stocks was 17.5%. This is a stark difference from the long-term U.S. stock annual return of 9.8%.
In 2021, investors are optimistic that a $10,000 investment in U.S. stocks will be able to grow to around $50,000 over the next decade, doubling the previous forecast of $25,000.
The boom in U.S. stocks over the past decade has marked this optimism among investors. Over the past decade, the S&P 500, the benchmark widely used as a measure of U.S. stock performance, has posted a compound annual return of 16.6%, not far from investors’ highest forecast for future annual returns of 17.5%.
But in the face of the highest level of inflation in more than four decades and the Federal Reserve’s aggressive policy of raising interest rates, investors are increasingly worried that the U.S. economy will decline.
The Wall Street Journal believes that investors may be “going nowhere” for a period of time, or they may “finish and crash.”
There is even a market view that the recent sharp sell-off in U.S. stocks may be an early stage of a correction. The Fed’s tightening of monetary policy may be the catalyst for investors to sell US stocks, and the market is still a long way from the neutral valuation of the stock market.
In fact, Fed Chairman Powell was also taught a setback by the “fever and irreversible” big inflation. The confidence he had when he insisted on the “temporary theory” is no longer there, and now there is only regret after the blow.
Last week, Powell said in an interview that the Fed is now under increasing scrutiny for its “half a beat” action against inflation, when it could have raised rates faster and lowered inflation.
Since 2022, U.S. stocks have continued to adjust, but this has not stopped the Fed’s determination to accelerate tightening. When asked what he thought of financial market volatility this year, Fed Chairman Jerome Powell said he would need to see a “sustained” or sufficiently substantial change in financial market conditions to jeopardize the achievement of the Fed’s economic goals before respond.
So the question is, how much does the U.S. stock market have to pull back to be considered a “substantial enough change”? Where is the Fed’s “psychological line of defense”? According to statistics from Soochow Securities, from a historical point of view, a 10% retracement of U.S. stocks from a 12-month high is a hurdle, and a 20% retracement is the limit.
Historically, the S&P 500 has fallen by more than 10% from its highs in the past 12 months, and the largest retracement is more than 15%. The Fed will be more cautious about tightening operations such as raising interest rates; The retracement is more than 20%, and the Fed has not raised interest rates. This extreme situation occurred once in December 2018. Interestingly, a 20% decline is also considered to be the threshold for the market to enter a technical bear market.
Bullies think,
When will U.S. stocks bottom?
What are the signs if they appear at the bottom?
Before the midterm elections in November,
Will Biden and the Fed “allow” U.S. stocks to go this way?
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Editor/Corrine
This article is reprinted from: https://news.futunn.com/post/15683581?src=3&report_type=market&report_id=206098&futusource=news_headline_list
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