The flagging U.S. stock market finally lifted its eyebrows this week. The three major U.S. stock indexes rose at least 6% this week, the first time since November 2020, as traders slashed expectations for a rate hike from the Federal Reserve, better-than-expected corporate earnings reports and rosy macroeconomic data boosted investor sentiment. .
Although U.S. stocks have performed better this week, if the time line is extended to the beginning of this year, the volatility of U.S. stocks is still very violent.
The team of Zhang Yidong of Industrial Securities believes that due to the increasing difficulty of the Fed in balancing inflation and economic growth, the economy is likely to decline this time, and the bear market of US stock market recession is doomed.
Boosted by investor sentiment, the three major U.S. stock indexes rose more than 6% in the week
Judging from the performance of the week, the three major U.S. stock indexes have all risen by more than 6%. The Dow rose 6.24%, ending the eight-week losing streak as of last week, the longest losing streak since 1923. The S&P 500, which had the longest losing streak since 2001, rose 6.58%, which was the same as the Dow. The biggest weekly gain since November 2020, the Nasdaq rose 6.84%, ending a seven-week losing streak.
Concerns about high inflation and the Fed’s path to rate hikes have plagued the market this year, with investors increasingly worried that rate hikes could lead to a contraction in the economy, which is the main reason for the bloodshed in U.S. stocks. Recently, as U.S. stocks have suffered a wave of selling, some investors have begun to buy into dips.
Moreover, the panic appears to be dissipating as some corporate earnings and economic data improve.
Strong earnings reports from some retailers this week pushed U.S. stocks higher. Macy’s, Nordstrom, two discount retailers Dollar Tree and Dollar General posted better-than-expected first-quarter results and raised their guidance, driving the retail sector up. Dollar Tree, beauty retailer Ulta Beauty and department store chain Ross Stores were the biggest gainers in the S&P 500 this week, each up at least 20%.
Key indicators showed that U.S. inflation slowed in April, with the PCE price index rising 6.3% year-on-year in April, a slight decline from the previous value and the smallest increase for the indicator since November 2020.
In addition, traders sharply lowered their expectations for a rate hike by the Federal Reserve. Traders saw the probability of the Fed hitting its target range of 2.75%-3% interest rates by the end of the year fell to 27% from 51% on May 19.
Under violent fluctuations, blind bottom-hunting is easy to be slapped in the face from left to right
From the perspective of this week, the sharp rise of US stocks is undoubtedly a relief for traders, but in the long run, the situation of US stocks is still not optimistic.
The U.S. benchmark S&P 500 is down 13% this year. Excluding its worst five days, the return was 2.6%. Meanwhile, the S&P 500 is down 24% year-to-date, excluding the top five sessions.
Under the fear of inflation and economic recession, U.S. stocks have been in a violent volatile market this year. Investors who cannot accurately judge the timing of fluctuations are easily slapped by the market and pay a heavy price.
In this regard, Liz Young, director of investment strategy at investment agency SoFi, warned investors to be cautious about bottom-hunting. Young said in an interview with the media:
“This is not the time to chase and judge bottoms, tops, inflection points, because inflection points happen every day to be honest ,” “You feel like you’re wrong every day, and that’s when you start making mistakes.”
Is the economy “probable” recession?
Such a large gain has also sparked heated discussions among investors about the bottom of the market.
Growth of this magnitude is characteristic of a market bottom, bulls say, and investors have realized that the stock market has fallen enough. Some analysts believe that in a bear market, it is completely normal for sentiment to briefly push up the stock market.
And according to Joseph Saluzzi, co-head of equity trading at financial institution Themis Trading LLC, U.S. stocks entered a “buffer period” before entering the bear market. Saluzzi said in an interview with the media:
“When the stock market gets to this point, it doesn’t really take much effort to bounce back. And the bounce comes quickly.” “The problem isn’t necessarily going away, but we’re optimistic that we’ve found a little bit of a middle ground between inflation and recession.” zone.”
This coincides with the view of Zhang Yidong’s strategy team at Industrial Securities.
Zhang Yidong believes that the current “mid-term end” of U.S. stocks may have appeared, and the major indexes are approaching or exceeding the bear market boundary, and then it is expected to usher in a “breathing” window period that lasts for several months.
But this does not mean that the U.S. stock market will usher in a reversal, and it may continue the trend of falling and falling. ” This round of US stock market recession and bear market may be doomed,” he said.
Zhang Yidong counted the interest rate hike cycles in the history of the United States and found that it is a small probability that the economy will eventually achieve a “soft landing”. At present, the Fed is facing the most serious inflation challenge in 40 years, and it is more difficult to balance inflation and growth. This time, it is likely to go into recession.
In addition, if the current market expects the water to close at the speed, the interest rate spread of various U.S. bond maturities will narrow rapidly in the next few months, and the market will issue a recession warning at that time.
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