The rebound in the US stock market since the Federal Reserve's decision last month may face a test.
As the economy slows down and inflation cools down, the market believes that the interest rate hike cycle has ended and is beginning to look ahead to future policy turning points.
This week, multiple Federal Reserve officials will make appearances, which will also be the last opportunity for the outside world to obtain relevant policy clues before the last interest rate meeting this year. As pressure at the International Monetary Fund (IMF) forum last month failed, whether Powell will suppress interest rate cuts and whether the latest inflation data will exacerbate market volatility regarding policy expectations will become the focus.
Multiple headed sword fingers reaching a new high this year
Similar to last year, the Federal Reserve's decision became a turning point in the market after reaching a low point within the year. Dow Jones market data shows that the S&P 500 index has exited the correction range in just 16 trading days, which is also one of the strongest rebounds since the 1970s.
Boris Schlossberg, macro strategist at BK asset management, said in an interview with First Financial:; Quota; I will attribute this to a decrease in returns. This is the main driving force, and what previously alerted investors was the volatility of long-term bond yields. Now, the yields on 10-year and 30-year US Treasury bonds have fallen significantly from their 16 year high of over 5%& Amp; Quota;
Federal funds rate futures show that investors are already looking forward to the prospect of a rate cut in May next year. Affected by this, the seven technology giants leading the market in the first half of this year; Quota; Magnificent Seven has made a comeback. According to statistics from First Financial News, the total market value of these American stock star companies has rebounded by over $900 billion in the past month, and their total weight in the S&P 500 index is once again approaching 30%.
The expected digestion of interest rates has also driven the market to further spread, becoming a guarantee for the sustainability of the rebound. According to Rosenberg Research, 58% of S&P 500 index constituent stocks are priced above the 200 day moving average.
Jiaxin Wealth Management stated that market breadth attempts to capture individual stock participation in the overall index, which helps to discover the continuity of the trend. Usually, broader participation indicates healthy investor sentiment and supportive technical factors. The bank stated that the outside world has seen a considerable breadth of thrust. At present, the market breadth is still lower than the high levels of the stock index in February and July this year, indicating that there is still room for growth in the future.
Seasonal factors are also beneficial to the market. Since 1950, November and December have been the second and third performing months for the US stock market. LPL Financial analyst John Lohse believes in a client report that optimism may prompt investors to re-examine historical highs; Quota; Technical indicators show that the S&P 500 index has broken through resistance at 4400 points and will retest the key 4600 point& Amp; Quota; He said that the next six weeks are the best performing period in the history of the US stock market, and technology oriented stocks remain a driving force.
The Federal Reserve's materials are not relaxed
Unlike external interest rate expectations, the Federal Reserve has repeatedly emphasized caution while maintaining vigilance against inflation. Cleveland Fed Chairman Mester warned this month that interest rate cuts were not discussed, and the focus should be on the Fed's need to persist; Quota; Restrictive stance; Quota; How long.
Schr ö sberg told First Financial that based on recent data, interest rate hikes are gradually taking effect, and overall inflation has dropped to its lowest level in over two years, but it is still far from the 2% target. He believes that the resistance to price declines will gradually increase in the future, as Federal Reserve Chairman Powell said, there is a need for below trend economic growth, so the Federal Reserve will not change its stance soon.
Deutsche Bank had previously issued a warning that its model showed that prices may not change much before March next year. Inflation may remain stable in the short term within the range of 3% -3.25%, which increases the risk that the Federal Reserve needs to further maintain or intensify its policies, especially when financial conditions ease.
JPMorgan Chase CEO Damon believes that investors have overreacted to short-term data& Amp; Quota; I'm worried that inflation may not disappear so quickly. Although it is correct for the Federal Reserve to stop raising interest rates at the moment, they may need to do more work& Amp; Quota; He said.
This Thursday, the United States will release the October Personal Consumer Expenditure Price Index (PCE), and the market expects it to continue to decline. Subsequently, Federal Reserve Chairman Powell will attend the event. Last month, his statement on further interest rate hikes at the IMF caused panic, so the outside world will also closely monitor it
Peter Cardillo, Chief Market Economist at Spartan Capital Securities, predicts that Powell may once again reiterate his hawkish stance, emphasizing that there is still a long way to go to achieve inflation targets, and that it is not yet time to declare victory, while reserving the right to take action& Amp; Quota; The Federal Reserve may need to remind the market not to be too complacent, as this can also bring some pressure to the stock market& Amp; Quota;
The recent rebound has also led to a resurgence in the valuation level of US stocks, intensifying adjustment pressure. According to LSEG Datastream, the 12 month expected P/E ratio of the S&P 500 index has rebounded to 18.7 times, far above the long-term average of 15.6 times. Keith Lerner, Co Chief Investment Officer of Trust Advisory Services, stated that it is entirely normal for the stock market to take a breather here, and the threshold for further market action will become higher. He suggests that investors can consider increasing their stock positions appropriately during a pullback.