The rebound of US stocks since June has encountered setbacks. After several Federal Reserve officials made tough statements, concerns about the path of monetary policy tightening have reappeared.

The rebound of US stocks from June has encountered setbacks. After several Fed officials made tough statements, concerns about the path of monetary policy tightening have reappeared and shrouded the market. interest rate hike expectation will then continue to push up US bond yield and US dollar index , and the decline in risk appetite suppressed growth stocks that performed well in the previous period. After US stocks completed the $2 trillion option delivery last week, funds will begin to accumulate momentum again, and Federal Reserve Chairman Powell's latest statement on policy positions at the Jackson Hall Global Central Bank Annual Meeting will become a catalyst for the market.

The Fed's aggressive interest rate hike expectation rekindled

The minutes of the Fed's July meeting showed that since there were no obvious signs of cooling in inflation, in order to meet the goal of promoting maximum employment and price stability, many officials believe that restrictive policy stance must be adopted. At the same time, with the further tightening of monetary policy stance, the pace of policy hikes in may slow down after evaluating the impact of cumulative policy adjustments on economic activities and inflation.

Oxford Economic Research Institute Senior economist Bob Schwartz said in an interview with First Financial reporter that judging from the minutes, Federal Reserve officials' risk assessment of monetary policy is more balanced. On the one hand, they have focused on the risk that the committee may question the Commission’s determination to fully adjust its policy stance and that high inflation may become deeply rooted, mentioning that the Commission may tighten its policy stance to restore price stability. On the other hand, the impact of interest rate hikes on economic activity has attracted attention, such as the outlook for the labor market is softening.

Judging from the data released last week, the downward pressure on the US economy shows signs of stabilization. Industrial output rose by 0.6% in July after a brief downturn. This improvement is largely driven by a surge in automobile production as severe supply chain problems in the industry are being alleviated. In addition to automobiles and parts, output in other manufacturing industries has also increased.

At the same time, retail and sales were supported as the decline in fuel prices promoted consumption. Gasoline prices in August have dropped about 11% so far from the July average, suggesting consumers have gained some extra breathing space in their budget, according to the American Automobile Association (AAA). However, considering the still high inflation rate, the decline in U.S. household savings and pessimistic assessment of financial conditions will test consumers' endurance.

First Financial reporter noticed that judging from the latest statements of Federal Reserve officials, anti-inflation is still placed in an important position. Richmond Fed Chairman Thomas Barkin said the Fed will do everything to restore inflation to its target level, even if it means there is a risk of falling into a recession. Hawkish committee member and St. Louis Fed Chairman James Bullard said he tends to support another 75 basis points rate hike in September.

Affected by this, U.S. Treasury yields fluctuated upward for each period last week, pushing the US dollar index to break through the 108 mark and approaching its high for the year. CME CME interest rate observation tool FedWatch shows that the probability of 75 basis points hikes in September is expected to rise to 47% from 31% last week. The outside world has turned its attention to the upcoming Jackson Hole Central Bank 2 Annual Meeting, when Powell will make the latest remarks on economic prospects and policy expectations.

Schwartz told reporters that considering the inflation rate is still very high, many people within the Federal Reserve believe that interest rates are below the neutral level, which means that there is not much policy space in the short term. He believes that the market may underestimate the extent of tightening the Fed promised to hit inflation, and the possibility of an uptick of 75 basis points will continue to increase if next week's PCE data is higher than expected. This will also drive the peak of interest rates to move upward in the future. There is no doubt that it is too early to declare victory over high inflation, and the Fed still needs to wait for the performance of several key data before the next meeting to evaluate policy decisions.

rebound encountered obstacles US stocks faced challenges again

Since bottoming out in mid-June, US stocks ushered in a rebound and repair market due to market expectations that economic pressure may curb the Fed's aggressive interest rate hikes and help reduce inflation.Subsequently, driven by the decline in energy prices and the easing of supply chain bottlenecks, the peak of prices hoped to reduce monetary policy pressure to a certain extent, and the upward revision of corporate overall profit expectations in the new financial report quarter further boosted market risk appetite.

Bank’s monthly global fund manager survey showed that global economic growth and corporate profit expectations rebounded from record lows set by previous record lows, with 88% of respondents expecting inflation to decline in the next 12 months. Hope that the impact of interest rate hikes will end in the future has made sentiment no longer extremely pessimistic. The survey found that institutions' allocation to stocks has rebounded slightly compared with July, with cash exposure falling to 5.7%.

At the same time, funds continued to return to the market. EPFR Global data shows that as of the week ending August 17, the US stock market received capital inflows for two consecutive weeks, with a scale of US$9.2 billion. The American Association of Individual Investors (AAII) market sentiment survey shows that the short-term net bearish ratio has dropped from 41% in late June to below 4%, and the US media market fear and greed index has returned to the greed range.

Now that the financial report season is about to end, investors will turn their attention to the economic outlook again, looking for further clues to future interest rate hikes. In the second half of last week, market volatility intensified, and the minutes and comments of the Federal Reserve's July meeting once again triggered market concerns about the path of monetary policy. The upcoming Jackson Hole annual meeting and the upcoming inflation and non-farm employment data may trigger a new round of turmoil in the coming weeks.

Worries about a bear market rebound once again plagued market sentiment. BlackRock Investment Institute said that the outlook for U.S. corporate earnings is expected to worsen considering the Federal Reserve may raise the federal funds rate to a level that “hinders the economy.”

Truit Advisory Services Co-Chief Investment Officer Keith Lerner said that after the sharp rebound of US stocks, it is now a good opportunity to reduce positions, and he also attributed the adjustment pressure to the risk of the Federal Reserve hike in , the Federal Reserve will lead to the economic slowdown. "The valuation is quite high now. From the perspective of risk-return, the trading range of S&P 500 is not very favorable in the trading range between 4200 and 4300."

Bank of America examines the 43 bear market rebounds experienced by the S&P 500 since 1929 in its latest report, and reiterates the view of "cyclical bear market" that the stock index is close to the top of the trading range. The "final bottom" is not yet clear and may appear next year. Michael Hartnett, chief investment strategist at Bank of America, said: "As inflation will still reach 5%-6% next spring, and the Fed's quantitative tightening may significantly strengthen in the next few months, which will have a negative impact on credit spreads and price-to-earnings ratios, the market still needs to bottom out ."