Event: Since the beginning of May, U.S. stocks have fluctuated violently, and there have been many single-day sharp declines. Some institutions believe that the current U.S. stocks have begun to trade expectations of a U.S. economic recession.

Core conclusion: From a comprehensive perspective, the adjustment of U.S. stocks since the beginning of May is not due to recession expectations, but is more affected by the thunderous performance of heavyweight stocks, Tesla’s acquisition of Twitter, and the escalation of the Russian-Ukrainian conflict. Continue to remind us that we can be optimistic about the US stocks in the second half of the year, especially the Nasdaq index, but we should still be highly vigilant against geopolitical disturbances such as the conflict between Russia and Ukraine and the Sino-US game.

1. Since the beginning of May, the U.S. stock market has fluctuated violently, not in the expectation of a recession. There are 5 main reasons:

(1) U.S. Treasury bond term spreads have not narrowed;

(2) The Fed’s interest rate hike expectations have not cooled significantly;

(3) The financial sector of US stocks outperformed the non-financial sector obviously;

(4) Earnings expectations for U.S. stocks have not been lowered, and 79% of companies in the first quarter reported better-than-expected results;

(5) Historically, U.S. stocks generally began to fall about 3 months before a recession, and the current time window for recession trading does not fit.

2. The recent adjustment of U.S. stocks is mainly due to the thunderous performance of heavyweight stocks, Tesla’s acquisition of Twitter, and the disturbance of the Russian-Ukrainian conflict: on the one hand, the first quarter earnings of heavyweight stocks such as Alphabet, Amazon, and Walmart were significantly lower than expected, resulting in a sharp drop in stock prices and dragging down The reason behind the index performance is that the market has underestimated the impact of the worsening epidemic in China, supply disruptions, and rising costs, and it is not expected to continue to deteriorate.

On the other hand, the mergers and acquisitions of Tesla and Twitter caused the stock prices of both companies to fall sharply, which also significantly dragged down the index. In addition, the intensified conflict between Russia and Ukraine since the end of April has also suppressed the market’s risk appetite.

3. Continue to remind: You can be optimistic about the performance of US stocks in the second half of the year, especially the Nasdaq index. In the short term, since the first quarterly report has not been fully released, and the disturbances of the Russian-Ukrainian conflict are superimposed, the US stocks may fluctuate and bottom out; As the correlation between A-shares and US stock trends and style switching has strengthened, this means that the impact on A-shares, especially growth stocks, is more positive.

The text is as follows:

1. From a comprehensive perspective from multiple perspectives, the current U.S. stock market is not significantly expected to trade economic recession.

From May 4th to May 19th, the S&P 500 and the Nasdaq fell by 9.3% and 12.2% respectively, and fell more than 3% in a single day three times before rebounding. Some institutions believe that U.S. stocks have begun to trade recession expectations, but we don’t think so for five main reasons:

(1) Currently, compared with the beginning of May, the U.S. Treasury bond term spread is basically unchanged. If the market is trading recession expectations, term spreads should narrow sharply or even invert.

(2) Since the beginning of May, the Fed’s interest rate hike expectations have only declined slightly, and only after the US CPI in April was announced. If the market is trading recession expectations, then rate hike expectations should cool significantly.

(3) Since the beginning of May, the S&P financial index has clearly outperformed the non-financial index. Historically, when the market trades in recession expectations, the financial sector tends to significantly underperform the non-financial sector.

(4) Since the beginning of May, the S&P 500’s EPS forecast for the next four quarters has not changed significantly. In addition, 79% of the S&P 500 companies that have reported their first-quarter earnings have reported better-than-expected earnings.

(5) In the previous report, we pointed out that from the perspective of term spread, debt risk, and economic momentum, the US economy will experience a recession as early as the end of 2023 or early 2024. Historically, US stocks usually do not trade until about 3 months before the recession. It started to fall, which is not currently in line with this time window.

2. The recent adjustment of US stocks is mainly due to the thunderous performance of heavyweight stocks, Tesla’s acquisition of Twitter, and the disturbance of the conflict between Russia and Ukraine.

> Heavyweight performance thunder: Although most companies made good profits, the performance of individual heavyweights was significantly lower than expected, such as Google, Amazon, Walmart, etc., resulting in a sharp drop in stock prices and dragging down the performance of the index, see Figure 6 for details.

Companies with lower-than-expected performance are concentrated in the retail sector. The main reason is that the market has underestimated the impact of the worsening epidemic in China, supply disruptions, and rising costs. Subsequently, as the epidemic in China is gradually brought under control, the global supply chain is repaired, and inflation is slowing down The situation is not expected to continue to deteriorate.

> Tesla’s acquisition of Twitter: Tesla’s stock price began to plummet immediately after Musk expressed his willingness to acquire Twitter in early April. Twitter’s “poison pill” was launched on April 15 in an attempt to block Musk’s takeover, and the stock price fell sharply afterward. Since May 4th, the shares of Tesla and Twitter have fallen 18.7% and 19.4%, respectively, while Tesla’s weight in the S&P 500 is as high as 1.6%.

After a rough calculation, only the six stocks of Amazon, Alphabet, Walmart, Ford Motor, Tesla, and Twitter have dragged down the S&P 500 index by 1.2% since May 4, accounting for 21% of the decline in the S&P 500 index during the same period. %. If indirect effects such as ETFs and market sentiment are considered, it will be even more significant.

>Russian-Ukrainian conflict disturbance: Since the end of April, the military situation in Russia and Ukraine has escalated, and then the United States and NATO announced to provide military assistance to Ukraine. Affected by this, Brent crude oil rose from $102.3/barrel on April 25 to the current $114.5/barrel, an increase of 12%, and market risk appetite was also suppressed.

3. Continue to remind: You can be optimistic about the performance of US stocks in the second half of the year, especially the Nasdaq index.

In the previous report, we have pointed out many times that in view of the fall in US inflation, the Fed’s most eagle moment has passed, the US bond yield is expected to fall again, the valuation of US stocks has been fully digested and other factors, combined with the historical law of US stock adjustment, this round The correction in U.S. stocks may be coming to an end.

In the short term, since the first quarterly report has not been fully released, and the disturbances of the Russian-Ukrainian conflict are superimposed, the US stocks may fluctuate and bottom out;

In addition, due to the stronger correlation between A-shares and US stock trends and style switching, this means that the impact on A-shares, especially growth stocks, is more positive.

Risk warning: US inflation, the Fed’s monetary policy orientation, and the conflict between Russia and Ukraine continue to exceed expectations.

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