After experiencing the epic sell-off of 'Black Monday' this month, the US stock market has slowly begun to return to normal last week, but do you think that's all for now?
JPMorgan Chase believes that this sudden sell-off, which triggered the largest decline in the US stock market in two years, may indicate future trends. Simply put, it is a 'rehearsal' for the future situation, as the factors driving the sell-off have not subsided.
Many market participants believe that the recent outbreak of various crowded trades is just an accidental event or a flash crash, but we believe that it is more like a rehearsal for future events, "they wrote.
This month, the market's collapse was caused by several unfavorable factors intertwined, causing panic among investors: the unexpected surge in unemployment triggered the "Sahm Rule" recession indicator; The Bank of Japan's interest rate hike triggered an epic sell-off in global stock markets; The Federal Reserve has been reluctant to cut interest rates for a long time; The huge investment of technology giants in AI has not yielded returns for a long time, and so on.
But as US retail data exceeded expectations and initial jobless claims fell to their lowest level since early July, the US stock market began to soar, rising for seven consecutive days. Not only did it recover all the losses from this month's sharp decline, but the three major indices also recorded their largest weekly gains since the "US stock market reversal" at the end of October 2023.
Many Wall Street professionals are immersed in the current joy and have concluded that the "shock of consecutive drops" that began on August 1st is just an overreaction to the brief fluctuations in data and should not be feared.
But Xiao Mo emphasized that there may be more selling in the future. The bank pointed out that although many investors are still afraid after the arbitrage trading explosion this month and are unlikely to rush to adopt this strategy again, triggering future volatility, other incentives are still stirring up.
We believe that concerns about economic growth may be the next trigger, "the bank wrote.
Warning sounds came one after another
In fact, there are many analysts who believe that the "darkest moment" has not yet passed, although the reasons they listed are different.
Barry Bannister, Chief Equity Strategist at renowned US investment bank Stifel, also called on investors to act cautiously last week. He said that if the economy continues to slow down and eventually enters a recession, a bear market is coming as inflation remains high. He predicted that the S&P 500 index would fall to 5000 points by October.
Bannister warns that inflation will become a catalyst for further declines in the US stock market, as it is "more sticky than people expected". He explained that the market believes that a rate cut in September is almost a certainty, but by 2025, housing inflation will definitely rebound significantly, which will cause greater price pressure. He said, "This means that the Fed's 2% inflation target is just a pipe dream
David Roche, President and Global Strategist of Independent Strategy, also predicts that the pullback in the US stock market is still "ongoing". He predicted that the U.S. stock market would have a bear market in 2025 due to the smaller than expected interest rate cut, the slowdown of the U.S. economy, the artificial intelligence (AI) foam and other factors.
I think these three factors are enough to cause the US stock market to plummet by 20% in a bear market in 2025, possibly starting as early as the end of this year, "he said.