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Wall Street may be more worried about the bond market than the US stock market.
The so-called "anchor of asset pricing" of the 10-year Treasury note is still facing a wave of selling, and on April 18, the 10-year Treasury yield reached its highest level since the end of 2018, at one point exceeding 2.88%. Wall Street agencies warn that the 10-year Treasury yield once broke through the resistance level of the "most important trend line ever", and the 40-year downward trend in interest rates may be coming to an end, and the four-decade bull market in the Us Treasury may also end.
A growing number of U.S. stock investors are worried that the turmoil in the U.S. bond market could spill over into the stock market. Goldman Sachs is reducing its allocation to the stock market. According to its latest financial report, in the first quarter of this year, Goldman Sachs net sell stocks of about $1 billion, is the third consecutive quarter of net selling, as of the end of 2021, Goldman Sachs in the past two years of cumulative net selling of stock assets of more than $12 billion. In other words, Goldman Sachs has sold a net of $13 billion so far, or about 82.7 billion yuan.
The biggest uncertainty about the future direction of the US stock market still comes from the Federal Reserve. The Fed's subsequent interest rate hike and balance sheet reduction rhythm mainly depends on the "face" of US inflation, and at present, in the context of the situation in Russia and Ukraine and large-scale avian influenza in the United States, THE US energy and food prices are still facing greater risks of rising. The market expects that the Fed may introduce a combination of "50 basis points of interest rate hikes + balance sheet reduction".
The "Anchor of Asset Pricing" sets the alarm
One of the biggest potential threats to the U.S. stock market is once again raising the alarm.
On April 18, the so-called "anchor of asset pricing" of the 10-year Treasury note suffered another sell-off, and the yield of the 10-year Treasury note reached its highest level since the end of 2018, at one point exceeding 2.88%.
Wall Street traders are betting that the Fed will accelerate the pace of tightening, raising interest rates and continuing to sell U.S. Treasuries. Strategists at JPMorgan Chase and MUFGSecuritiesAmericas predict that the 10-year Treasury yield could climb above 3 percent.
As U.S. Treasury yields continue to rise, they are hitting "the most important trend line ever." Wall Street analysts pointed out that the 10-year US Treasury yield once broke through the resistance level of the "most important trend line ever", and the 40-year downward trend in interest rates may come to an end, and the four-decade bull market on us Treasuries may also end.
Carter BraxtonWorth, a technical analyst at Worthcharting, said that if the 10-year Treasury yield breaks through its 40-year downtrend, it could be seen as the beginning of a new uptrend. This will mean that interest rates will continue to rise and the US stock market will continue to be under pressure.
The expected change in the yield on the 10-year U.S. Treasury note has undoubtedly put pressure on the U.S. stock market and even triggered U.S. investors' fears of a U.S. recession.
A growing number of U.S. stock investors, fearing that the turmoil in the U.S. bond market could spill over into the stock market, is heating up demand for put options that can protect them when the stock market falls.
According to TradeAlert, the one-month moving average of the ratio of OPEN PUTS to Open Call Contracts on THE SPDRS &P500 ETF Trust is 2.25, already the highest level in the past four years.
Data from Wall Street analysts shows that the Russell 2000 Small Cap Index and the S&P 500 retail ETF have also secured defensive option positions in recent weeks.
In addition to this, the Chicago Board Options Exchange Volatility Index (VIX), known as Wall Street's "fear indicator," was recently around 21 and was well above its all-time median of 17.6 for most of 2022.
Affected by higher US Treasury yields, U.S. stocks came under pressure on Monday, and the three major indexes closed slightly lower across the board, with the Dow down 0.11%, the S&P 500 down 0.02%, and the NASDAQ down 0.14%. Boosted by expectations of rate hikes, the dollar hit a two-year high.
Cautious Goldman Sachs
Wall Street investment banks, which have the sharpest sense of smell, have also begun to be cautious about the US stock market.
The first is Goldman Sachs, which is reducing its allocation to the stock market. According to its latest financial report, in the first quarter of this year, Goldman Sachs net sell stocks of about $1 billion, is the third consecutive quarter of net selling, as of the end of 2021, Goldman Sachs in the past two years of cumulative net selling of stock assets of more than $12 billion. In other words, Goldman Sachs has sold a net of $13 billion so far, or about 82.7 billion yuan.
Goldman Sachs' investment performance was also unsatisfactory in the first quarter of this year, with its stock investment in the open markets losing $620 million, which is already its third consecutive quarter of losses, with a cumulative loss of nearly $2 billion (about 12.7 billion yuan).
Affected by this, Goldman Sachs' asset management unit's net income plunged 88% in the first quarter to only $546 million, compared with $4.6 billion a year ago.
Affected by this, Goldman Sachs' revenue and net profit in the first quarter have declined to varying degrees. According to the financial report, Goldman Sachs' first-quarter revenue was $12.93 billion, down 27% year-on-year, and profit in the quarter fell 42% year-on-year to $3.94 billion.
As of now, Goldman Sachs has not disclosed the 13F report for the first quarter of this year, so to sort out Goldman Sachs' latest position, you need to look at its disclosed fourth quarter report of 2021.
According to the report, as of the fourth quarter of 2021, goldman sachs' total market value of holdings was $506.2 billion, and goldman sachs added 790 new stocks and increased its holdings by 2686 stocks in the portfolio. At the same time, it also reduced its holdings of 2348 individual stocks and liquidated 547 individual stocks. Among them, the top ten position targets accounted for 18.06% of the total market capitalization.
In terms of heavy stocks, the proportion of the top three heavy stocks has declined from the previous quarter, and Microsoft's shareholding ratio has declined the most.
Specifically, the S&P 500 ETF ranked first, It holds about 37.618 million shares, with a market value of about $17.867 billion, accounting for 3.53% of the portfolio; Apple ranks second, with about 68.2644 million shares and a market value of about $12.122 billion, down 2% from the previous quarter, accounting for 2.39% of the portfolio; Microsoft ranks third, with about 32.3420 million shares and a market value of about $10.877 billion, down 9% from the previous quarter, accounting for 2.15% of the portfolio.
In the first quarter of this year, the cumulative decline of the S&P 500 index was close to 5%, and Apple and Microsoft also recorded declines in the first quarter, with a decline distribution of 1.67% and 8.33%. The weak performance of the top three heavy stocks in the first quarter became the main reason for Goldman's losses.
Another investment in Goldman Sachs' loss came from Alibaba. In the third quarter of 2021, Goldman Sachs significantly increased its stake in Alibaba by 17.476 million shares, and then Alibaba's stock price continued to fall sharply, falling by 34.7% in the third quarter. In the fourth quarter that followed, It directly reduced its holdings of 8.2875 million shares of Alibaba, a decrease of 17% from the previous quarter, and by the end of 2021, Alibaba accounted for only 1.46% of its shareholding. Since 2022, Alibaba's stock price has continued to plummet, falling by 19.6% during the year.
Where does the Fed go?
The biggest uncertainty about the future direction of the US stock market still comes from the Federal Reserve.
The Fed's subsequent interest rate hikes and balance sheet reduction rhythms mainly look at the "face" of US inflation, and at present, the situation in the future period may not be very optimistic.
First of all, with the continuation of the Russian-Ukrainian conflict and the energy sanctions imposed by Europe and the United States on Russia, the price of commodities is still rising.
On April 18, U.S. natural gas futures rose to $7.55/MMBD, breaking through a January high and roughly doubling from the beginning of the year, the highest level in more than thirteen years.
At the same time, the United States is exporting gas in large quantities to help Europe reduce its dependence on Russian energy supplies. Bloomberg reported that U.S. natural gas exports have almost reached their limits due to strong demand for natural gas in Europe
In addition, U.S. food prices also face greater risk of rising. At present, the U.S. avian influenza is still spreading on a large scale, and the USDA has announced that it has detected a highly contagious avian influenza virus in 27 states. Analysts point out that for now, this is the worst bird flu outbreak in the United States since 2015.
About 27 million chickens and turkeys have been culled due to infection over the past 2 months, according to the USDA, which has led to a shortage of egg supplies and soaring prices. Since January, the average price of a dozen eggs in the United States has soared from $1.2 to $3, an increase of nearly 150%, and the rally continues.
This may further aggravate the US inflation rate, which continues to "explode". The USDA said that food prices in the United States will rise by about 5% in March, of which poultry meat prices will rise by about 7% and fruit prices will rise by between 5% and 6%.
Under the pressure of rising energy and food prices, the risk of inflation in the United States is still large. Therefore, the market expects that the Fed may introduce a combination of "50 basis points of interest rate hike + balance sheet reduction" at the May meeting.
Judging from the latest schedule, in the coming week, a number of senior Fed officials will give public speeches, most of which are directly related to monetary policy.
On Monday, US time, the famous "eagle king" Brad of the Federal Open Market Committee of the Federal Reserve said that the Fed needs to act quickly to raise the benchmark interest rate to about 3.5% before the end of the year; it needs to raise interest rates by 50 basis points several times during the period, and the possibility of a 75 basis point hike should not be ruled out. In addition, if inflation does not fall as expected, accelerating the balance sheet reduction may become "Plan B".
In addition, Fed Chairman Jerome Powell will deliver the finale speech of the pre-Fed in the early hours of Beijing time on Friday , when he will participate in a panel discussion on the global economy organized by the IMF with Ecbbank President Lagarde, Bank of England Governor Bailey and other policymakers.
Source: Brokerage China (ID: quanshangcn)
Editor: Ye Shujun
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