The inflection point has arrived?

Recently, market sentiment has also rebounded significantly, and the turnover has exceeded the trillion level for the first time in a long time. Although A-shares fluctuated slightly yesterday, the turnover was also more than 990 billion. After surviving the long night, the dawn is flashing, and it is naturally worth exciting.

However, calm down and think about whether the current rally can be sustained, and has the market reached an inflection point?

First of all, why is it rising?

The reason for the rebound in the short-term equity market is driven by three factors:

First, there has been a marginal easing of pressure overseas.

Observing the trend of the 10-year U.S. Treasury yield since the beginning of this year, it broke through 4% in August and continued to rise, and the U.S. stock S&P 500 index also started a shock correction in August, and the northbound funds of A-shares have also outflowed since then.

It can be seen that as the anchor of global asset pricing, the breakthrough and high level of U.S. Treasury yields will affect the risk appetite of funds to a certain extent, and then put pressure on the equity market.

The U.S. non-farm payrolls and PMI data for October were lower than expected, pushing up market expectations for the Fed to end its interest rate hikes. The landing of the November interest rate meeting also confirmed that the Fed has paused interest rate hikes continuously. When the 10-year Treasury yield retreats, equity market risk appetite will also recover.

Second, the domestic policy of stabilizing growth continues to exert force.

Since the Politburo meeting in July, there have been positive policies at the policy level, with the issuance of trillions of special treasury bonds, the deployment of financial work at the Central Financial Work Conference, and the reform of various targeted mechanisms in the capital market, which shows the determination to boost the economy and financial markets.

However, due to the continuous rise in U.S. bond yields, the relative cost performance of equity assets has fallen, and the market risk appetite has tended to be cautious, and the sentiment has even been dulled for successive positives, and A-shares have continued to weaken. When these constraints ease in the short term, the pent-up sentiment in the early stage can be catalyzed more quickly.

Again, the market has accumulated a large decline in the early stage.

As the saying goes, "the extremes of things must be reversed", in the long run, the ups and downs of the market have their cyclical laws of mean reversion. There was a large adjustment in the market in the early stage, and the valuation also entered the relative bottom range. When the market sentiment eases, the high cost performance of investment can attract more funds to return, and the recovery of trading sentiment can be seen from the recent A-share turnover exceeding one trillion yuan twice.

Can the rally be extended?

In the medium term, the market sentiment is still in flux, which means that the volatile pattern may not be over.

On the one hand, it remains to be seen whether there will be a substantial shift in the Fed's monetary policy.

Although the need for another rate hike has decreased, the US economy is still relatively strong, and the stance of pausing or switching to a rate cut is not sufficient. Therefore, there is still uncertainty about the subsequent Fed policy rhythm, and it is necessary to further observe the changes in the US employment and inflation data, and watch as we go.

On the other hand, the domestic PMI data in October has fallen, indicating that there are still twists and turns in the recovery of demand.

Although the short-term data fluctuations are affected by seasonal factors and holidays, the real estate investment data has always been weak, indicating that the foundation for domestic economic recovery still needs to be further consolidated.

As a result, it will take time for market sentiment to recover, not overnight. With the support of the "steady growth" policy, the mainland's economy has continued to recover, but the pressure it is facing cannot be ignored. Whether this will usher in a reversal will need to be combined with the specific situation in the future, and it will be observed and done.

After the opening of the market, is it possible to enter the market?

Even if the future market reversal remains to be seen, it is undeniable that the current A-shares have indeed entered a more valuable investment range.

From the perspective of the risk premium of Wind All A, after a short-term recovery, the current stock and bond spreads have returned to the level of 3.2, but they are still at the high quantile near 80% in the past ten years, indicating that the current cost performance of stock investment has exceeded the time of nearly 80% in the past ten years.

For investment funds, when the stock-bond spread is at the level of 3.2 or above, the winning rate is as high as 90% and the average return is 30.95% when the holding period is one year. If the holding period is extended, the winning rate of the investment can increase to 100%, and the average rate of return will gradually rise.

Therefore, after the adjustment in the early stage, while the spread between stocks and bonds is at a higher quantile, the relative value of the equity market is highlighted. Overall, it's also a good time to invest in equity funds. With the rebound of the market, equity funds are expected to usher in the opportunity of net value repair.

The game expected by the short-term market is likely to continue, which means that the short-term volatility is difficult to say the end.

On the one hand, we must rationally eliminate the disturbance caused by emotions, and do not let the voice of the market easily affect our investment rhythm, and often fill or clear positions. On the other hand, it is also necessary to clearly understand the current valuation level of A-shares, which is indeed in a cost-effective range in the medium and long term.

Doing these two points is actually not so important to the question of whether the current market is an inflection point. Returning to the essence of investment is nothing more than doing the difficult but right thing at the right time, implementing your own investment discipline in an orderly manner, accumulating bullets in an undervalued position in the market, and cashing in the benefits at the moment when the market is overheated.

(Source: China Economic Net)