U.S. stocks may crash

Wealthy and chivalrous

2024-05-01 17:58Posted in Guangdong financial field creators

U.S. stocks plummeted on Friday!

In the past two years, due to the continuous adjustment of A-shares, it is particularly difficult to make money in A-shares. On the contrary, U.S. stocks have hit new highs, and the money-making effect is very prominent, so many people have invested in U.S. stocks through QDII or other channels, and many friends who do U.S. stocks have also made a lot of money.

But can U.S. stocks continue to hit new highs?

An article published by Yahoo Finance yesterday caught my attention: "There is a 'systemic problem' in the stock market."

The article mentions that the U.S. stock market faces a familiar problem.

Despite better-than-expected first-quarter earnings, the market struggled to move higher sustainably as rising Treasury yields weighed on stock market sentiment, reminding investors of a time when rising yields led to a stock market crash in 2023.

Michael Kantrowitz, chief investment strategist at Piper Sandler, wrote in his weekly report to clients on Friday: "Rising interest rates are now a systemic issue in the stock market. ”

Kantrowitz pointed to the market movement over the last month, which can be reduced to a basic formula: when Treasury yields rise, the stock market falls. Recently, Treasury yields have surged again. The 10-year Treasury yield has risen more than 40 basis points since the beginning of April and was last quoted at 4.63%, the highest level since November 2023. Over the same period, the S&P 500 has fallen about 3%.

In a research video distributed to clients, Kantrowitz said: "At the moment, it's hard to see the stock market continue to rise without interest rates coming down. ”

The same movement can be seen in the two-year Treasury yield, where Julian Emanuel of Evercore ISI marked 5% as a key technical indicator, a key technical level during last year's bond-driven equity sell-off. It should be noted that the US stock market has recently retreated from its April highs, during which the two-year Treasury yield hit 5% again. On Monday, the two-year Treasury yield stood at 4.98%.

As Treasury yields continue to rise, investors have sharply scaled back bets on the Federal Reserve to cut interest rates this year.

According to Bloomberg, market expectations for the Fed to cut interest rates this year have been revised from seven to just one.

Morgan Stanley chief investment officer Mike Wilson wrote in a research note on Sunday that unless Fed Chair Jerome Powell "shows a dovish stance" at Wednesday's press conference, upward pressure on Treasury yields is likely to persist.

Given the recent inflation data, economists don't expect that to happen when Powell speaks.

"We expect the main message from the press conference to be that policy needs more time to play a role," Bank of America economist Michael Gapen wrote in a research note, and that "Powell should signal an expectation of a rate cut, but the Fed is on the sidelines for the time being until it is confident in inflation." ”

Powell is expected to maintain his original view, which will not ease the rise in Treasury yields.

Rising yields also helped explain why the S&P fell nearly 3% in April, despite the fact that first-quarter earnings from publicly traded companies have generally been better than expected so far. According to Wilson, the S&P 500 index members reported earnings of an average of 9% more than expected for the quarter, the highest level since 2021, but the stock price reaction was "modest".

"We believe this is due to the pressure on valuations caused by rising interest rates," Wilson wrote.

Strategists believe that this trend will not change in the short term.

David Kostin, chief U.S. equity strategist at Goldman Sachs, said that "while 'long-term higher' interest rates are not necessarily an insurmountable obstacle for equities, some stocks will face adjustment pressure if rates continue to climb," and "most notably, stocks with weak balance sheets will generally underperform." ”

Risk Warning: Investment is risky, and you need to be cautious when entering the market

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