Investors should not be too surprised when they see ***.
At present, the U.S. market is very fragile, and there are several factors that may lead to a significant increase.
The first factor has to do with the number 4607 pointsThis is the intraday high of the year set by the S&P 500 at the end of July, the index has accumulated about 19% so far this year and is currently just below 4600 points, and whenever it approaches the intraday high of 4607 points, sellers will enter the index to push down, and if sellers continue to enter around this level, it will put additional selling pressure on **.
As the U.S. economy has so far avoided the expected recession, the market is optimistic that the economy and corporate profits can continue to grow, hence the substantial. In addition, the Fed's rate hike cycle may be over, and the pressure on rate hikes will disappear.
The fact that the manager went on a big spree during *** is the second factor that could trigger a wave of selling. Managers now hold a net $800 billion of S&P 500 contracts, up from last year's low of around $200 billion, according to RBC data
Managers' holdings are currently just below their highs of just over $1 trillion since 2006, and these managers may now cash out by selling, especially if market risk and their paper profits are realized.
Lori Calvasina, chief U.S. equity strategist at Royal Bank of Canada, said: "Investor sentiment is once again at an overly high level, which has dampened our interest in U.S. equities in the short term. ”
Given the weakening volatility in the market, it is not surprising that investor enthusiasm for ** has become too extreme. History tells usWhen volatility is as low as it is now, it tends to be large next.
The VIX Fear Index, which measures volatility, has now fallen from a multi-month high of around 22 at the end of October 13, and when the index is at a high level, it indicates that investors' uncertainty about future earnings and how to value it is peaking, and when the index is at a lower level, investors are becoming more confident, often followed by a rise in valuation. Any measure of economic and earnings risk could lead to a decline in the S&P 500's average return of 6 months through June of the new year as the VIX entered the new year at a level of 14 below 69%。
If the market's expectations for a Fed rate cut fail to materialize, it will be substantial. The federal market is currently pricing in a 47% probability of a Fed rate cut in March next year after inflation has fallen sharply from last year's peak, however, inflation is still above the Fed's 2% target and the Fed may not be able to cut rates so quickly. If interest rates are cut in March, inflation will remain above target after demand is stimulated, and if that happens, the Fed will have more reasons to raise rates one or twice more.
Chris Harvey, strategist at Wells Fargo**, said: "In the short term, the Fed is more inclined to slow down the pace of action, and cutting rates too soon will lead to higher inflation and undermine the Fed's credibility." ”
That's why the likelihood of a rate cut in the near future will drop, and this will put pressure on the rate. The Fed may already have some reasons not to cut rates, such as the sharper-than-expected job creation in November, and the Fed's inflation concerns are not so easily dispelled.
All of these factors can lead to ***, so investors should not be too surprised when they see ***.
Text |Jacob Sonamsien
Edit |Guo Liqun
Copyright Notice: Barron's original article, without permission, may not**. For the English version, see December 9, 2023, "A strong jobs report makes big rate cuts unlikely in 2024".
The content of this article is for informational purposes only and does not constitute any form of investment and financial adviceThe market is risky and investors should be cautious. ）