The bull market will continue because at least professional investors will continue to buy, especially those who want to catch up with the broader market before the end of the year.
Risks are rising as the U.S. stock market continues to reach new highs, and some market participants have pointed out many times this year that it may be time to sell. Some of last week's market movements also seemed to send signals: Major companies such as Apple (AAPL), Amazon (AMZN) and Boeing (BA) released less than expected earnings reports; the latest US GDP data was weak; and the US Treasury yield curve flattened sharply.
But Barron's believes the time to sell is yet to come, for the simple reason that the stock market continues to rise. The Dow Jones Industrial Average rose 0.4 percent last week, the S&P 500 rose 1.3 percent, and the Nasdaq Composite rose 2.7 percent. All three major stock indexes hit new highs.
Investors are overly worried about the tightening of monetary policy in the United States, and Barron's magazine believes that even if the Fed shrinks its balance sheet, the monetary environment will remain loose. In addition, historical data shows that in a three-month period, November is the beginning of the best three months for major US stock indexes.
1, the Fed's easing policy will not brake sharply
On Friday, the difference between 2-year and 10-year Treasury yields narrowed rapidly by 105 basis points from 129 basis points on Oct. 8, largely due to a sharp rise to 0.52 percent for the 2-year Treasury yield, which is most sensitive to Fed policy expectations.
The flattening of the yield curve (i.e., the difference between short- and long-term Treasury yields) reflects investors' concerns about the Fed's tightening of policy, but Barron's notes that for most investors, the only time it is necessary to observe the yield curve is when it "inverts," when short-term interest rates are higher than long-term interest rates, which is usually a signal that a recession is coming. The current difference between the two is 1.0678 points, which is still far from reversing.
The Fed will hold a policy meeting this week, at which the fed is widely expected to announce plans to scale down its bond purchases. Barron's believes that even if the Fed tightens its policy, the monetary environment will remain loose, as illustrated by the continued upward sloping yield curve.
In addition, BCA Research's Global Investment Strategy Report shows that interest rates will rise to what economists call "neutral levels," a level that neither stimulates nor hinders economic development.
The Fed defines the "neutral level" of the federal funds rate as 2.5%, compared with the current range of 0%-0.25% for the federal funds rate, and the market expects the Fed to take at least two rate hikes of 0.25% by the end of 2022, raising this range to 0.50%-0.75%. Compared with 2.5%, it can be said that the monetary environment is still very relaxed after the interest rate hike.
2, the US stock market can also reach a new high
J.P. Morgan's global market strategist team also pointed out that although there was a sharp fluctuation in the yield curve last week, there was not much change in the macroeconomy, the anti-epidemic situation is still improving, and the performance of listed companies is not particularly worrying.
While Apple and Amazon's profits fell sharply, it didn't affect the rise in the stock market or have much impact on the stock prices of both companies. Both Apple and Amazon shares fell on Friday, but the former still rose 0.8 percent that week and the latter 1.1 percent. Edward Moya, senior analyst for the Americas market at Oanda, said: "Investors understand that Apple and Amazon's lower-than-expected earnings reports are due to supply shortages, are only a short-term issue, and will not affect their market dominance. ”
Judging by the market width indicator, the stock market may also continue to move higher. The NYSE cumulative advance-decline line, a measure of market width, the ratio of the number of individual stocks rising and falling on a daily basis, hit a record high last week for the first time since June.
Jason Goepfert, an analyst at Sundial Capital Research, said that from historical data, there have been 25 times since 1935 when the rising line hit a new high three months after a record high, with 22 times the S&P 500 also higher than in three months, with a median increase of 4.1%. He said: "From such a long period of investigation, it can be seen that when the market width hits a new high, the stock market is more likely to rise, even if it is down, the amplitude is very small." ”
Those who sold off when U.S. stocks fell 5 percent in September might see the bad news and say that investors should not celebrate the stock market rally but should be vigilant. But Frank Gretz, an analyst at Wellington Shields, believes that the bull market will continue because at least professional investors will continue to buy, especially those who want to catch up with the broader market before the end of the year; the stock market has survived a lot of bad news, no matter how high it can rise next, the pace of the rise will not stop.
3. The five most worth buying stocks at the moment
However, this does not mean that it is not suitable to buy now. Barron's pointed out that historical data shows that November is the beginning of the best three months for major U.S. stock indexes to perform in a three-month period, with the S&P 500 and Dow averaging 3.4 percent gain over those three months, higher than all other comparable periods, with nasdaq gaining an average of 6.3 percent.
As for what to buy now, investment experts recommend buying stocks that have seen at least 25 percent profit growth in the most recent quarter and annual; looking for companies with new, game-changing products and services; and companies that have recently gone unprofitable but whose revenues are growing substantially.
In addition, investors should also pay close attention to the supply and demand of the stocks themselves, focusing on the stocks that are leading in the head industry and supported by large institutions.
As stocks return to the upside, investment experts have identified five stocks with strong fundamentals that have recently broken out of their respective technical chart indicators: Alphabet (GOOGL), cybersecurity firm Fortinet (FTNT), Goldman Sachs (GS), mining company Cleveland-Cliffs (CLF) and lithium producer Albermarle (ALB).
At Friday's close, Alphabet rose 1.51 percent to $2,960.92; Fortinet rose 2.74 percent at $336.34; Goldman Sachs fell 0.35 percent to $413.35; Cleveland-Cliffs fell 1.39 percent to $24.11; and Albermarle rose 1.79 percent to $250.47.
Wen | Contributor to the Chinese edition of Barron's Magazine Guo Liqun
Edit | Kang Juan
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