Author丨Xiang Xiufang
Edit丨Li Yanxia
Picture Source丨TuChong
Under the hawkish shadow of the Federal Reserve Federal Reserve investors actively adjust to prepare for possible "hard landing".
On Friday, September 23, local time, the U.S. stock reappeared a selling wave. The Dow Jones Index fell 486 points, or 1.6%, to 29,590 points, falling below the 30,000 point mark. S&P 500 fell 1.7% to 3693 points. Nasdaq fell 1.8% to 10,867 points. The Cboe Volatility Index (VIX), known as Wall Street's "panic index", once rose to above 30 during the session on Friday, a high level not seen in nearly three months.
Picture/wind
The Federal Reserve announced this week that rate hikes 75 basis points, predicting that it may add up to 125 basis points this year, posing the strongest hawkish pose in decades. Federal Reserve Chairman Powell said on the same day that although he hopes for a painless way to do this, there is no higher interest rates, slower economic growth and a weaker labor market will be painful for the people.
Analysts interviewed by 21st Century Business Herald reporters under 21st Century Business Herald pointed out that the Fed's interest rate hike path and rhythm have been tightened again, and the peak of the effective interest rate rate of federal funds in this round of interest rate hike cycle may reach 4.6%. Judging from the subsequent market reaction, investors were obviously too optimistic before. Now, investors have finally understood the Fed's signal clearly and have begun to make quick adjustments. US stocks are expected to continue to bottom out of during fluctuations, but where is the bottom? No one can tell now.
plus up to 125 basis points in 4 years
In order to control inflation that has reached a 40-year high, the Federal Reserve has raised interest rates by 300 basis points since March this year. Under the influence of the continued tightening of monetary policy, turmoil in the financial market has intensified and economic growth has begun to cool down.
Haito Global CEO Wang Jinlong told a reporter from 21st Century Business Herald that US inflation is very stubborn and maintains a high level on the basis of falling crude oil and agricultural product prices. If the Fed firmly wants to reduce inflation to 2%, it can only continue to raise interest rates and reduce the balance sheet of .
In Wang Jinlong's view, the 75 basis points rate hike is basically in line with market expectations, and there is no worst case of 100 basis points rate hike, mainly because inflation has been basically controlled in recent months, and the US unemployment rate has also begun to rise. "The Federal Reserve does not want to lead to a hard landing and enters a recession directly." Wang Jinlong said that there will be two more interest rates this year, which is expected to be 75 and 50 basis points respectively, and the benchmark rate of will increase to around 4.5%. Hu Gang, managing partner of
hedge fund WinShore Capital, also told the 21st Century Business Herald reporter that the Federal Reserve is very concerned about inflation, especially controlling inflation expectations. 's next two interest rate hikes are expected to be between 100 and 125 basis points, and the probability distribution of is about 55. The main determinant is inflation data in the next few months.
Hu Gang pointed out that the market currently expects that the month-on-month increase of core inflation in September and October will be between 0.3% and 0.4%, and then drop to around 0.2%. If the inflation data meets this expectation, he believes that the possibility of the remaining interest rate hike within 100 basis points this year is greater than 125 basis points.
Data from the U.S. Department of Labor shows that the U.S. Consumer Price Index (CPI) rose 8.3% year-on-year in August, and has been above 8% for six consecutive months. The growth rate of core CPI, which the market is more concerned about, is still accelerating compared with July, which makes the outside world have great doubts about whether US core inflation can fall faster.
The labor market is overheating, inflation expectations are high, and working-class Americans are seeking a salary increase. The strike of US rail workers is reminding people that the United States is hovering on the verge of rising wage prices. This is one of the last scenarios the Fed wants to see. Despite preliminary agreements reached by labor and capital parties, this strike that could lead to supply chain disruption has been avoided.
But Hu Gang told reporters that the agreement reached is not conducive to the downward trend of inflation. On the one hand, the agreement gives a high price, and on the other hand, this agreement will prompt trade unions in other industries to demand similar agreements. This is exactly a manifestation of the spiral ascending.Very unfavorable to controlling inflation.
The risk of an economy "hard landing" increased
According to the latest economic forecast , the median forecast of the U.S. unemployment rate in the fourth quarter of 2023 was 4.4%, up 0.5 percentage points from the June forecast. The median forecast for the year-on-year growth rate of GDP (GDP) in the fourth quarter of this year was 0.2%, significantly lower than the 1.7% forecast in June and even lower than the 2.8% forecast in March. It shows that expectations for the economic outlook are even more pessimistic.
Powell admitted on the same day that in the process of curbing inflation and restoring price stability, it is very challenging to achieve a "soft landing" in the economy. If monetary policy needs to be tightened further to more restrictive levels, or tightening will take longer to last, the likelihood of a "soft landing" will be reduced.
The Fed clearly understands the risk of excessive rate hikes will put the economy into recession, but Powell repeatedly stressed that the reason for the need to lower inflation now is to avoid a more serious recession in the future. “No one knows whether this process will lead to an economic recession, or how severe this recession will be,” he stressed that the Fed has not abandoned the idea of allowing unemployment to rise relatively modestly.
senior researcher at the Industrial and Commercial Bank of China New York Branch pointed out to the 21st Century Business Herald reporter that the Fed's FOMC resolution statement has not changed much. It is worth noting that the Federal Reserve has significantly revised its actual GDP forecast and significantly improved its unemployment rate forecast in 2023. The "tone correction" of the economic forecast summary once again conveys the Fed's determination to hit the labor market and fight inflation by cooling the economy, which also indicates that the possibility of a soft landing in the US economy has been reduced again.
At the Fed Listens event on Friday afternoon, Powell used the term "new normal" when talking about the economy in an introductory speech, describing the current situation of the US high-inflation and low-growth economy. He said he would continue to deal with a series of unusually unusual economic disruptions. As a policymaker, the Fed is committed to using the Fed’s tools to help guide the economy through a unique and challenging time.
US stocks will continue to bottom out during fluctuations
Affected by the tightening of liquidity of the Federal Reserve's interest rate hike This year, the S&P 500 index has fallen by more than 22%. The Dow Jones Index fell nearly 19%. The Nasdaq Index, which is mainly technology stock , hit more than 30%. During the trading session on Friday, the Dow Jones Industrial Average had already broken through the mid-June low, and the S&P and the Nasdaq were one step away from falling below the previous low. A research report from
Bespoke Investment Group pointed out that no one can tell where this bear market will eventually bottom out, because events outside the Fed's control may affect the final direction of the stock market to a certain extent. Goldman Sachs has lowered its S&P 500 index's year-end target from 4,300 points to 3,600 points, believing that the obvious change in the prospects of interest rate hikes will put pressure on US stock valuations.
The Federal Reserve's massive interest rate hike in order to suppress demand has led to a slowdown in the economy, and corporate profits are inevitable. Recently, FedEx lowered its performance expectations, causing sharp fluctuations in stock prices, which has triggered investors' concerns about the profit prospects of US stock companies.
Wu Hao pointed out that corporate profit forecasts have begun to be significantly revised. According to FactSet data, analysts' current expectations are that the company's profits of the S&P 500 component will rise by 3.5% year-on-year, lower than the expected increase of 9.8% on June 30. The expectation for the corresponding growth rate in 2022 has dropped from 9.6% to 7.7%.
"As the Federal Reserve raises the federal funds rate to 3%, zombie companies and companies with difficult refinancing and high financing costs will be hit first, and , and as the benchmark interest rate may increase to 4.6%, even companies that can withstand the pressure of rising costs by raising the prices of goods and services will begin to be under pressure. ," said Wu Hao.
Wang Jinlong also pointed out to reporters that the accelerated rise in interest rates and wage costs have great pressure on enterprises, and the market's profit expectations for listed companies have been further lowered. Companies have passed on rising costs through price increases and reduced expenditures through layoffs. The stock market is expected to continue to bottom out during fluctuations before the end of the year.
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Editor of this issue Jiang Peipei Intern Meilexuan
