Recently, US stocks continued to rise. On Tuesday (2nd), US stocks rose again, and the Dow Jones Index hit 25,742.65 points, setting a new high since March 6. As the US stocks continue to strengthen, in fact, American states are facing protests and the economy has not yet resumed work. So many investors can't help but have questions, the stock market is the window of the economy, so why does the US stock market "turn a blind eye" to political risks and economic fundamentals?
The stock market is the window of the economy. The real meaning behind it is that the stock market is the leading indicator of economic prosperity. Sometimes the stock market will lead the real economy by 1 to 2 months, and even more so, sometimes it will lead to a 3-month economic outlook. In short, the stock market is a barometer that reflects the expectations of economic fundamentals and corporate profits.
In fact, although there are currently anti-epidemic riots in states across the United States and the new crown epidemic in the United States has not yet subsided, it is obvious that the US stock market has long placed its sights further, that is, the economic rebound after the "US economy restarts" and the warming of inflation bottom.
In addition, in addition to paying attention to the US economy that will resume work and restart, coupled with the Federal Reserve's QE quantitative easing policy and the largest economic stimulus measures in the history of the White House, all of which make Wall Street investors believe that the worst time in the stock market is likely to have passed, and the long tunnel has seen a glimmer of light.
The stock market is the window of the economy. To put it more accurately, the stock market reflects future expectations. From the current point of view, stock market investors are expecting that the US economy will be on track in the second half of the year, inflation expectations will rise, and corporate profits will also recover.
Investment Clock Observe the future market of US stocks: stocks rotate and take over the market,
US stocks bottomed out and strengthened in late March, mainly driven by technology stocks leading, and technology stocks themselves are the traditional "first line of prosperity". In major global stock markets, the market often gives technology stocks a higher P/E ratio valuation. Therefore, after the market experienced a round of sharp drop, the recovery momentum of technology equity capital-earning ratio valuation is often strong, and such market cyclical behavior is also reflected in Bank of America Merrill Lynch investment clock .
Judging from the current four major U.S. stock indexes, the Nasdaq and Philadelphia Semiconductor Index are all ready to challenge the previous highs, while the Dow Jones Index and S&P 500 are still some distance away from the previous highs, which also confirms that in the early counterattack of bulls in the stock market, market investors are more favored for technology stocks.
As technology stocks started to rise since the March low and were preparing to challenge the previous high, the valuation of technology stocks has obviously returned a lot. Looking ahead to the future market, inflation stocks such as US energy stocks and raw material stocks seem to be preparing to take over the baton to continue the long offensive of US stocks.
WTI oil price has been benefiting recently from the resumption of work and the restart of OPEC+ production cuts, and the production cut agreement may be extended to July and August. In just about one month, WTI rose from below 20 yuan per barrel to above 35 US dollars per barrel. The reversal of oil prices is also igniting the market's expectation of inflation to recover.
As shown in the figure below, the traditional inflation expectations indicator in the financial market is the 10-year U.S. Treasury Balanced Inflation Rate (Break-even rate), that is, the 10-year U.S. Treasury Balanced Floor Rate minus the spread of anti-inflation bonds (TIPS). This is one of the most commonly used indicators for the market to observe future inflation expectations. Because the bond market is quite sensitive to inflation, if the face value of the bond is lower than inflation, the bond value will be eroded by inflation. Therefore, investors will demand the so-called discount from the market. Therefore, changes in the yield rate of the bond market can be regarded as the inflation indicator of the market.
. Judging from the current inflation expectations in the bond market, it is also clearly warming up in parallel with oil prices.
Proof of the recovery of inflation in addition to the rise in international oil prices and the strengthening of the balanced inflation rate of US bonds, the recent Bank of America also raised its target price again to US$5,621 per ton for soaring copper prices, while the target price in 2021 remains unchanged at US$6,250 per ton; copper prices have also risen by 21.7% since the March low.
In the cycle of the Bank of America Merrill Lynch investment clock, as shown in the second quadrant of the figure, the stock market and the economy in the early stages of recovery, the outlook for economic growth increased, but inflation was still weak at this time. From the description of the prosperity cycle of the Bank of America Merrill Lynch investment clock, it can be found that the performance of investment in the stock market, including technology stocks, industrial stocks, etc., is the most worthy of expectations. Just like this rebound in the US stock market, technology stocks are led by technology stocks to attack the high.
As the expectations of economic growth further rise, governments' rescue plans for responding to the financial crisis have gradually fermented. In the scenario of a simultaneous recovery of inflation, the economic cycle will also begin to shift from the second quadrant to the first quadrant. Therefore, from the perspective of the investment clock of Bank of America Merrill Lynch, energy stocks, industrial stocks and other stocks will begin to take over the previous leading technology stocks and become the new force of the next wave of stock market bulls.
