After the S&P 500 soared 14% in seven weeks, investors began to watch it fall from 4080 points on November 30 to 3933 points on December 7.
At the same time, on December 7, the inverted U.S. Treasury yield curve hit a new record high, and the alarm of recession became louder and louder. The 10-year U.S. bond yield fell to a level of 85 basis points lower than the 2-year U.S. bond yield, setting a deepest since 1981.
analyst issued a warning, When Fed really stops hike rate , US stock will have no way out, and those "short-sighted" bulls will be liquidated.
On December 7, the media said that Rich Weiss, chief analyst of diversified asset strategy at the world's leading asset management company , the United States Century Investment Corporation (ACI), said that those "short-sighted" investors who only focus on whether the Fed is hawkish or dove to choose entry time often ignore the fact:
When the interest rate reaches its peak, the economy usually has entered a recession, and the stock market has no way out at this time.
"short-sighted" investors
November final day, Federal Reserve Chairman Powell reiterated his position of continuing to raise interest rates to curb high inflation in his last public statement before the December interest rate meeting, but the market believes that he also sent some suggestive dovish signals, with S&P and the Dow rebounding sharply. It was also from the rebound that day that the US stock market began to fall for many consecutive days.
American Century Investment Management Chief Investment Officer of Multi-asset Strategy Rich Weiss said she was not surprised by the decline in U.S. stocks, she believed that it was long overdue for bulls to liquidate . Weiss said:
Investors' obsession with Fed interest rate policy has made them ignore the possible outcomes that may occur in the end - the reality of a recession will suppress any rebound in the stock market.
Weiss said that many investors are now "short-sighted" , staring at the Fed with a "focus" gaze, and only paying attention to the Fed. Weiss said:
Usually these investors who only focus on when the Fed will turn will not see a bigger picture - the economy has entered a recession.
Weiss believes that the root cause of this problem lies in the fact that after the outbreak of the epidemic, the Federal Reserve issued a series of monetary policies in order to quickly recover the economy, which affected investors' habits . Many people have become accustomed to the investment strategy that can make a profit by buying on dips, so that they ignore the fundamentals of and future fluctuations. Weiss said:
Although investors cheered for the Fed's turn, the reality is: When interest rates drop, the economy is usually in recession and the stock market has no way out.
According to media reports, Jonathan Krinsky, chief strategist of US investment bank BTIG, pointed out in a report to clients on December 6 that after the S&P 500 index fell on Monday, it happened to coincide with the 200 5-day moving average (200 5-day moving average is often regarded as a weather vane for long-term trend changes in the market), and the US stock market is about to usher in a plunge. Krinsky said:
Investors are too complacent, just like the S&P index fell at a year-long resistance level in March and August.
Treasury yield inverted: recession is coming
On December 7, the inverted degree of the US Treasury yield curve hit a record high, and the inverted range of the 2-year/10-year key yield curve expanded to more than 85 basis points, setting the deepest since 1981.
Media analysis pointed out that the most basic signal sent by the inverted yield curve is: investors believe that the Fed will sacrifice the prospect of economic growth to fight inflation . Analysts believe that:
, a record-breaking inversion, not only reflects the pace of radical interest rate hikes, but also reflects that even if investors change their expectations for economic growth - , the US economy is about to enter recession in 2023, the Federal Reserve still insists on hikes.
Media said that Jonathan Cohn, strategist at Credit Suisse , said that the inverted yield curve further deepening shows that investors believe that the Fed will still be committed to " suppressing inflation, even if it is at the expense of economic growth or bringing recession."
Bank’s chief interest rate strategist Mark Cabana said the shape of the yield curve is an indicator of the degree of tightening of monetary policy, and the market clearly believes that the tightening will last for quite some time.
At the same time, the analysis pointed out that long-term bonds are equal to the long-term investment return of productivity, while short-term bonds are equal to the cost of the liability side. When costs and returns begin to reverse, the instability of the stock market is increasing. Therefore, under the prospect of rising volatility and accelerating recession, US stocks may have begun another round of decline in .
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