U.S. stock This bear market is sliding out of control.
Wall Street News introduced that in September this year, the S&P 500 and Dow Jones Industrial Index hit the largest monthly decline since the outbreak of the new crown epidemic in the United States in April , down 9.3% and 8.8% respectively. was the worst September since 2002 performed in the same period, and Nasdaq index fell 10.5% that month.
From a quarterly perspective, in the third quarter of this year, the S&P 500 index fell 5.3%, and fell for three consecutive quarters, which is the longest quarterly decline since the 2008 financial crisis. Nasdaq Composite Index , which is mainly technology stock , fell 4.1% this quarter, hitting its worst closing level since July 2020 on Friday.
S&P has fallen by 25% this year, and the decline has ranked third in history (since 1931). Compared with the record high in January this year, the market value of the S&P 500 has evaporated by about $10 trillion.
The desperate moment of bulls
Nowadays, the market people's mind is "bottom".
investors are already extremely pessimistic, the market is already oversold, and the institutional stock allocation position has been at a historical low. From a technical perspective, the conditions for rebound are already met.
But under the ruthless suppression of Feder , these technical support of is ineffective .
Some media mentioned that Although S&P 500 recovered half of the bear market decline from January to June, the summer upward offense has ceased. A 50% rebound from the bear market low is considered a perfect indicator to predict a new bull market, but now, the June low has been broken, and a series of integer marks and key trend lines (such as the 100-day average) have also failed.
in the ruthless sell-off, and those stubborn "dead bulls" also began to shake.
JPMorgan Chase strategy analyst Marko Kolanovic was once one of the most determined bulls, but he now pessimistically emphasizes the risks of central bank policy mistakes and geopolitical escalation.
Recent geopolitical and monetary policy risks have put our 2022 U.S. stock target at risk.
Although we still maintain a higher-than-consensus optimism, these goals may not be achieved until 2023 or when the above risks are mitigated.
Kolanovic's target price for the S&P 500 this year is 4,800 points, 34% higher than the closing of this Friday. What makes the bulls even more desperate is that if pulls out the data of several bear markets in history to compare, the pain of the US stock market may not have ended yet.
According to media statistics, in the previous few bear markets, the average decline of US stocks reached 39% in 20 months, which means US stocks still have room for a decline of 19%. The current 9-month bear market duration is less than half of the average duration of the past 14 bear market cycles.
Comparing the Fed's tightening cycle with the US stock bull and bear cycle, it can be found that although is not every round of interest rate hike cycle, indicates the end of the stock market, before the Fed changes its tightening path, the market's bottoming path is endless.
This means that the market will have to think about how high the central bank will be before it can stop.
In the previous six bear markets, all the bottoms were formed when the Federal Reserve cut interest rates. Traders currently expect Fed rates will not peak until April 2023.
Why do people misjudgment inflation every time?
The reason why the market is so painful is largely due to misjudgment of inflation and the inertial dependence on the Federal Reserve's rescue of the market.
Inflation is the most important factor driving changes in asset valuations at present, but few people can accurately predict where inflation may go. Why is this happening with
?
BankAmerican Securities global economist Ethan Harris believes that professional institutional forecasters, policy makers and traders have ignored the inflation scenario in the 1970s. High inflation at that time forced three Fed chairmen to raise interest rates above 10%, and the inflation frenzy finally subsided in the 1980s.
Now, people always naively believe that inflation may peak quickly in a short period of time.
The U.S. core PCE price index for August released this Friday increased by 4.9% year-on-year, which is the price indicator that the Federal Reserve values the most, and the market expectation is 4.7%. The CPI data released in mid-September also caused a huge shock in the market because it exceeded market expectations. In Europe, the CPI growth rate in euro in September reached a record 10%.
Meanwhile, economists, policy makers and traders are considering the possibility that U.S. inflation will approach or be below 3% in in 2023.
Harris said that these people looked at the problem with "potential bias". The biggest bias is to ignore the lessons learned from the 1970s. They believed that Phillips curve was dead and could not see evidence opposite to this assumption. As a result, what they waited for was a painful and slow surrender process, which reached its peak in the past month.
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