CICC reported on April 8 that according to Wall Street experts, two important trends that boost the stock market are about to end, which will pose major challenges to investors.
Among them, short cover is a short-term model, which drives the S&P 500 to rise by more than 13% from its intraday low on February 11. JPMorgan Chase’s model shows that short-selling replenishment has run out of ammunition and food.
and another Fed put option is long-term. Fed put options said are supported by the Fed's loose monetary policy. Bank of America Merrill Lynch analysts found that high-risk stocks benefiting from Fed policies are now starting to perform poorly in the industry. In Thursday's trading, the three major stock indexes fell nearly 1% across the board.
Dubravko Lakos-Bujas, head of U.S. stock strategy at JPMorgan Chase, said in a report to clients, "We believe this recovery is largely driven by policies that are not fundamentally sensitive and short cover." This company's model of monitoring market trends suggests that there is little room for further short cover. If analysts believe that this rebound has driven price fluctuations to a large extent rather than fundamental changes, then this rebound is dangerous.
Wall Street has entered its first quarter financial report season. According to financial information provider FactSet, financial data for the first quarter should be very poor. It evaluates that the total revenue of the S&P 500 will drop 8.5% in the first quarter, which will be the worst quarter since the third quarter of 2009. And, the index shows a four-quarter decline in seven years.
FactSet reported that the main reason for the poor data in the first quarter was the plunge in energy. It is expected that energy has fallen by 101.8% compared with the same period last year. This data even ruled out the industry's 3.7% decline expectation.
In addition, fundamentals have also deteriorated. According to Atlanta federal tracking, GDP (GDP) rose only 1.4% in the fourth quarter of last year, and GDP in the first quarter is expected to be even weaker, at 0.4%.
"Now, most of the technical factors have been used to drive stocks to rise, and the current stock valuation level is rising, and the rise of US stocks requires a re-acceleration of economic profit growth and a weakening of the US dollar." Lakos-Bujas said, "The fundamentals are still facing challenges."
Usually, the market will seek some policy help from the Federal Reserve to keep the rise going. However, after a 25 basis point rate hike in December, the Fed kept interest rates unchanged in January and March this year. Apart from being on a relatively dovish stance, the Federal Reserve has no choice but to do anything about it.
Data from the Chicago Mercantile Exchange shows that the market generally does not believe that interest rates will be raised in the Federal Reserve resolution on April 26-27. Even if Fed Chairman Yellen’s dovish remarks and Fed officials’ remarks after him will help maintain the recent rise in U.S. stocks, market confidence is still weakening.
Bank American Merrill Lynch stock quantitative strategist Savita Subramanian said, “We suspect that the Fed will continue to push up the rise in risky assets?” We see that high-risk stocks with high returns under loose monetary policy tend to decreasing returns. Similarly, the impact of the Fed's dovish remarks is very weak, and the rebound after Yellen's dovish remarks is the smallest rebound since 2014.
Subramanian said that so far, companies with strong profitability have also performed poorly this year, with only a 7% increase.
She said high-quality stocks are still cheap and have very low holdings. In our opinion, the fundamental appeal remains low.
