In addition, due to the high proportion of manufacturing in China, China is also affected by the current weakening demand for overseas goods and the price of raw materials. According to past experience, China's total manufacturing orders and inventories are 1 to 2 quarters ahead

Three major stages

The first stage (green bottom): Excessive inflation began to suppress the economy. The Federal Reserve initially focused on suppressing inflation and raising interest rates, and the stock market began to reverse downward. second stage (yellow bottom): The economy begins to slow down significantly. The stock market and inflation reflect the slowing down of the economy. The Fed will turn later and the stock market bottoms out. The third stage (blue bottom): The economy has bottomed out and stabilized, inflation continues to decline, the Federal Reserve is loose, and the stock market is long.

Observed from the figure, the stock market usually has a downward outlook in the early stage of the second stage, and the stock market accelerates to catch up with the bottom , and then is accompanied by three important bottom signals: Inflation is declining, economic data is negative, and the linkage It will definitely start to turn to , and we can estimate from the current situation and find the time when the worst situation in the stock market will occur. Regardless of whether there will be a recession, the pattern will proceed in this way: if there is a recession, raw materials will inevitably react with a collapse, and a bottom will appear as the stock market plummets; without recession, energy prices will rise or fall slowly, and inflation will depend on the base period . Only by gradually raising the price and digesting it can the uncertainty of the stock market be reduced, which has been the case throughout history.

Market Views and Configurations

As can be seen from the figure below, the current situation is when we are passing from the first stage to the second stage. Inflation has turned to high-level shocks, the economic outlook has begun to accelerate downward revisions, and the correction of the stock market has also shifted from "valuation adjustment" "Prospect adjustment", it is expected that as the economy declines, the Fed will have the opportunity to reduce the number of interest rate hikes in Q4 this year ~ Q1 next year, and suspend interest rate hikes after Q2 next year, and the stock market will accelerate its pursuit of the bottom in the next 1 ~ The outlook for 2Q20 has been revised.

As we enter the critical Q3, we expect to continue to see economic downturns, including Taiwan’s electronics exports. The two-stage base period increase in June and September will significantly suppress the growth rate. The profits of major financial reporting seasons in July will continue to decline due to inflation. Revisions, as well as the slowdown in employment figures, are all continuing bearish testing points. recommends that users pay attention to the above indicators in Q3 and wait for the negative test to pass before the bottom signal can appear and move towards a healthier long market.

China’s current situation

① The initial bottom has rebounded, and the policy has finally taken effect

② The negative interest rate gap between China and the United States is still likely to expand, continuing to suppress the RMB exchange rate

China’s economy is gradually recovering from the production side, but it has not yet been passed on to corporate investment , completing a positive feedback loop , whether it is the housing market or capital transfer, the structure has not yet fully improved, and the overall prosperity is an initial recovery after hitting a freezing point.

In addition, due to the high proportion of manufacturing in China, China is also affected by the current weakening demand for overseas goods and the price of raw materials. According to past experience, China's total manufacturing orders and inventories are 1 to 2 quarters ahead of the United States, and then bottomed out. As China's domestic demand gradually recovers but the external environment weakens, needs to rely on continued policy efforts to help the global manufacturing industry bottom out in the next 1 to 2 quarters.