On Tuesday, August 13, 2024 local time, the three major indexes of the US stock market collectively rose sharply, with the Nasdaq index rising 2.43% and the S&P 500 index rising 1.68%, both achieving four consecutive days of gains. In terms of constituent stocks, Nvidia rose over 6%, while Intel, Tesla, and Broadcom rose over 5%.
Has the US stock market recently resumed trading
Recently, global capital markets have been volatile, with the Nasdaq and S&P 500 indices continuing their 2023 gains in the first half of the year, ranking among the top in terms of gains among major capital markets worldwide. The turning point in the market mainly occurred in mid July, mainly due to the following reasons:
(1) Interest rate cut trading: After the release of the US inflation data in June, market expectations for a rate cut have increased. This is because tech giants, who had previously seen astonishing gains, have ample cash flow, causing market funds to flow towards small and medium-sized stocks and traditional industry stocks that may benefit significantly from the rate cut. The market style has undergone a short-term shift, with small cap stocks representing the Russell 2000 index performing outstandingly.
(2) Election Trading: In July, the US election situation and poll support rates fluctuated repeatedly, and the market began to trade the policy proposals of different candidates, resulting in an overall trading style that fluctuated.
(3) Reverse of carry trades: The Japanese yen, as a global low interest fund, has long been an important source of financing for hedge funds. In July, the Bank of Japan announced a rate hike, coupled with expectations of a Federal Reserve rate cut, resulting in the appreciation of the yen and an increase in Japanese bond rates. Previously, funds invested in US stocks through low interest rate financing in Japan began to flow back, triggering arbitrage trades and closing positions, putting pressure on global stock markets.
(4) Recession Trading: The July non farm payroll and unemployment data released by the United States fell short of expectations, and the market was concerned that the US economy may enter a recession, triggering recession trading and further exacerbating market selling.
The transition from interest rate cuts to carry trades, and then to recession concerns, reflects the complexity and volatility of the global capital market under the interweaving of various macroeconomic factors and policy expectations. Despite experiencing an extremely complex month, it appears that the market is gradually returning to stability as the Federal Reserve and Japan's monetary policies become clearer and panic subsides. The latest data released by the US Department of Labor yesterday showed that the US Producer Price Index (PPI) rose by 0.1% month on month and 2.2% year-on-year in July, lower than market expectations; The slowdown in inflationary pressure has further raised market expectations for the Federal Reserve to cut interest rates, and the Nasdaq 100 index, which had a significant decline in the previous period, rose 2.43% yesterday.
Can the rebound of the US stock market last
Tianhong Fund believes that in terms of economic fundamentals, the July non farm employment data was lower than market expectations, which may have been affected by seasonal factors such as hurricanes, as we can see that temporary unemployment contributed most of the increase in unemployment rate. Therefore, it is premature to assert that the US economy is in recession based solely on one month's data. The economic data for the second quarter of the United States shows that growth remains strong, and the Atlanta Fed's economic forecast for the third quarter remains at around 2%. Federal Reserve officials also stated that they cannot confirm that the economy has entered a recession; In addition, even if there are signs of a recession in the US economy, the market generally believes that the Federal Reserve has sufficient monetary policy space to respond.
In terms of monetary policy, the market generally expects a very high probability of the Federal Reserve cutting interest rates in September. Although the November presidential election may have some impact on monetary policy, the Fed's monetary policy goals are mainly to stabilize employment and control inflation, and it is expected that they will not deviate from these two main lines due to political factors. Once the Federal Reserve initiates a rate cut, the US stock market will significantly benefit from the liquidity benefits and valuation support brought about by the rate cut.
In terms of individual stock financial reports, the second quarter report is nearing its end. As of last Thursday, a total of 454 companies in the S&P 500 have released Q2 results, among which 356 listed companies exceeded market expectations in terms of profits, accounting for about 78.56%. The overall profitability of US listed companies remains resilient.
The driving force of economic growth is still present, and the Federal Reserve's interest rate cuts are expected to be combined with the strong profits of US listed companies. We still maintain an optimistic attitude towards the US stock market. After the adjustment since mid July, the valuation of the US stock market has significantly fallen, and the long-term upward trend of the US stock market in history has not changed. We hope that investors can seize the rare opportunity for a correction in the US stock market.