Since entering April, U.S. stocks have continued to pull back and basically reversed the rebound in March. The Dow and S&P 500 have fallen by more than 3% and 7%, and the Nasdaq has fallen by 12%.

That’s not a good taste for individual investors who used to be accustomed to buying the dip. In 2022, the average decline in the S&P 500 is about 2.5 full days, the longest since 1974, and the average rebound after each decline is -0.2%, the worst in nearly 50 years.

Some netizens said: When I thought I could buy the bottoms, in fact…

In addition, the stock market decline that has lasted for days or even weeks seems to have finally affected market sentiment.

Goldman Sachs statistics found that in the past week, the net sales of the five technology giants FAAMG hit a new high for the year. According to the latest weekly sentiment index from the American Association of Individual Investors (AAII), nearly 44% believe the market is heading for a bear market, which is nearly 14 percentage points higher than the historical average.

It is worth mentioning that the Fed will hold another interest rate meeting next week. The market currently generally expects that the Fed will raise interest rates by 50 basis points for the first time since 2000. At the same time, it is expected that the Fed will quickly begin the process of shrinking its balance sheet.

In the face of the market adjustment that has started since April, for investors who believe in “everything in the past is a prelude”, the most hope is that this simple-sounding question will be answered: Can U.S. stocks still be bought?

The two camps are arguing, can the bulls hoof in the US stock market continue to run wildly?

Wall Street’s opinions are clearly divided into two factions: the faction represented by Goldman Sachs and JPMorgan Chase Asset Management believes that the Fed can ensure economic recovery while curbing inflation, and US stocks will continue to rise.

Another group, including Bank of America, Morgan Stanley and Citigroup, is increasingly warning of a “bear market trap”, believing that the U.S. economy will slow down and urging investors not to chase yields.

1. Is there room for U.S. stocks to rise?

JPMorgan’s Marko Kolanovic, one of Wall Street’s most staunch bull strategists, said that given the previous period of weak investor confidence, low positioning, systematic buying, seasonality and oversold conditions, short-term U.S. stocks tend to be more inclined. to rise.

He also expects the rebalancing of fixed-weight portfolios at the end of the month to lead to massive inflows into U.S. stocks. Other near-term positives for U.S. stocks include options-related buying after monthly expirations and a reversal of last week’s massive gamma short selling.

In terms of specific investment strategies, he recommends that investors adopt a barbell strategy for their portfolios, holding both traditional growth stocks and traditional value stocks. In addition, JPMorgan’s global strategy team also increased its holdings of stocks in commodities, autos and airlines.

While investor fears of a U.S. recession are building, Goldman Sachs said its forward-looking recession risk indicator has not risen significantly. Indicators point to a 25% chance of a recession in the next 12 months. Historically, investors only need to worry about a sharp drop in stock market valuations when this probability reaches 40-50% or more. Therefore, although the bank expects the return of US stocks to be lower than before, it said that it will continue to increase its holdings of US stocks.

2. Can the US stock market rebound continue?

However, unlike JPMorgan, many Wall Street institutions are currently predicting that the rebound in US stocks may only be a bear market rebound in the context of the Fed’s quantitative tightening. According to estimates by Citi , the U.S. stock market will fall by 10% for every $1 trillion in liquidity that the Fed shrinks over the next 12 months.

According to Bloomberg, BTIG analyst Jonathan Krinsky wrote in the report:

I’m cautious about the rally, the trend is still down. The recent small rally has done little other than ease short-term oversold conditions.

Morgan Stanley analyst Mike Wilson said this week that he is pessimistic about the performance of U.S. stocks in 2022. The bank believes the correction since April may not be enough to set the stage for a sustained rebound, as economic growth may be slowing.

Price pressures have now reached levels that are damaging to corporate profit growth. While inflation and inflation expectations may have peaked, this is not a bullish factor as the pace of growth in corporate earnings has lost momentum.

Bloomberg noted that while bulls may end up profiting in the long run, the weakness in the market can still be nerve-wracking.

Peter Chatwell, head of multi-asset strategy at Mizuho International, said:

There is no doubt that the market’s perception has shifted. In the stock market, “sell the rallies” seems more profitable.

We expect the bear market to continue into the second quarter, which will only turn into a mild risk rebound in the second half of the year when inflation risks show substantial signs of nearing a peak.

Kari Firestone, chairman and chief executive of Aureus Asset Management, said the market needs to see more companies deliver strong, reliable and sustainable first-quarter results so investors can get back on board.

Can U.S. stocks resume their rally?

What is the most tense in the market right now:

High inflation, the situation in Russia and Ukraine, the Fed raising interest rates and shrinking the balance sheet, or a recession?

In the face of volatile market conditions,

What’s your current strategy?

Welcome to the comment section to share your insights~

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