Optimism Led To Renewed Innovation In The US Stock Market, Facing Three Major Risks In The Second Half Year

The US new crown pneumonia epidemic continues to rebound, the economic recovery process is afraid of interference, but none of this has prevented the three major indexes of the US stock market from rising on Monday, and the NASDAQ index has hit a new high with the help of technology giants.

In July 6th, Amazon's stock price stood above $3000 for the first time, and its market value exceeded $1 trillion and 500 billion. Google's parent company Alphabet returns to the trillions of dollars club, marking the market capitalization of the four giants of apple, Microsoft, Amazon and Alphabet once again surpassing one trillion US dollars. The last time this milestone came was before the outbreak of the new US crown in late January.

Since hitting the bottom in March 23rd, the NASDAQ has rebounded more than 50%, the S & P 500 index has risen nearly 38%, and the Dow Jones Industrial Average has also rebounded more than 37%. At the time of the impact of the new crown and the economic downturn, the US government resorted to unprecedented monetary and fiscal policy measures, which greatly boosted the confidence of market investors. Since the beginning of the resumption of industry in May, the US economy has seen signs of recovery. In June, employment data, manufacturing and non manufacturing PMI rebounded, and some investors believed that the worst moment of the economy seemed to have passed.

But many analysts who interviewed by the economic news reporters in twenty-first Century warned that it would take a long time for the US economy to recover to the level before the epidemic. In the second half of the year, the US dollar is expected to face multiple uncertainties, and there is a big adjustment pressure.

The three major indexes of the US stock market rose on Monday. - Xinhua News Agency

Rebound driven by optimism

Wang Xinjie, chief investment strategist of Standard Chartered China, told an economic news reporter in twenty-first Century that the rise in asset prices was largely supported by policies. The Federal Reserve and the US Treasury responded to the crisis by issuing economic stimulus or relief policies at a very fast rate, including two successive interest rates cuts, loans for businesses, cash payments for people and even direct purchases. When buying corporate bonds, all policies and measures were released in a timely manner compared with the 2008 financial crisis. The current asset price performance largely reflects the confidence of the market in the relevant rescue measures of the US government.

In fact, the economic impact is still more serious. Take the US employment market data as an example, the loss of jobs due to the epidemic crisis is far ahead of the 2008 financial crisis. Wang Xinjie believes that the macroeconomic and asset prices are "decoupling" to a certain extent. Although the US economy has seen signs of recovery in recent years, it has not returned to the level before the epidemic, and it may take a longer time to recover to the pre epidemic level, perhaps more than a year. Therefore, in the short term, after the stock market has rebounded so much, the market worries still exist.

Noah's chief economist, Xia Chun, also pointed out to the twenty-first Century economic news reporter that the market is driven by a relatively optimistic mood. Because "from the data point of view, the economic data are good, but not to the extent that the stock market has performed so well."

"The economic recovery is better than the original pessimistic expectations, I think this is an important reason for the rise of the stock market." Xia Chun also pointed out that the Fed is actually reducing the purchase of bonds and slowing down the pace of expansion. If we look at this problem from an optimistic perspective, the US economy has already started to get better, and the Federal Reserve does not need to "drain water" again.

However, Xia Chun stressed that it is difficult to answer clearly whether the economic benefits are too high in the stock market. Considering that the market is full of uncertainty in the second half of the year, he thinks investors need to be cautious. "The current situation is that the market is particularly looking forward to good news, so long as there is good news, the market will go up. Once bad news comes, the market is down. During this period, a combination of big rises and small falls has been formed.

Short term economic recovery

Data released by the US Department of labor last week showed that the number of employed persons in the non-agricultural sector increased by 4 million 800 thousand in June, better than expected in the market, rising from 2 million 500 thousand in May. In June, the unemployment rate in the United States dropped to 11.1%, down from 13.3% in May. Improvements in the labour market indicate that economic activity is gradually recovering.

In addition, the data released by the American Association for supply management (ISM) showed that in June, the ISM manufacturing PMI in the US was 52.6, the highest since April 2019. In June, the US ISM non manufacturing index of 57.1 was the highest in four months. The two data exceeded market expectations and returned to the upper and lower levels of 50, indicating signs of expansion in the US economy.

However, the United States still has nearly 20 million unemployed people, and the economy is far from being restored to normal level. It is a problem for the huge unemployed population to be absorbed by the economy and how much of the expenditure of the consumers will be affected. More importantly, since late June, many states in the United States have suspended the resumption plan due to the rebound of the epidemic, which has cast a shadow over the sustained economic recovery.

It is difficult for market participants to have a unified view of the recovery of the US economy. Some people think that the economy will usher in a V recovery. Just as the US stock market has taken the lead in getting out of the V rebound, others believe that the economy will be U and W recovery, or the trend is similar to the shape of Nike trademark.

Xia Chun believes that the US economy will usher in a U recovery. Judging from the current attitude of the US society to the new crown epidemic situation, even if the confirmed cases are surging again, there will be no large-scale stoppage and shutdown in the US. Therefore, the impact of the rebound on the economy will not be as great as in March, but the bottom of the economy needs to continue to wait and see for some time.

Wang Xinjie pointed out that the US economy had fallen into recession in February. It is expected that there will be a more obvious rebound in the three quarter, but the rebound will stagnate to a certain extent, and it is likely to resume to the level before the epidemic, even after 2021 or even 2022. He believes that the US economy is expected to hit bottom in June or July, and then back to expansion. Therefore, this will be the shortest cycle of economic recession in the United States.

Three major risk factors in the second half

To a large extent, the economy depends on the development of the new crown and the government's response. At present, the US epidemic situation is hard to predict, the prospects for economic recovery are uncertain, and the second half of the year is faced with major political events such as the presidential election. Many uncertainties will affect the trend of US stock market.

Wang Xinjie believes that investors need to pay attention to the three risks in the second half. First of all, the risk of a comeback in the US will fall in the autumn. Measures to control the epidemic and extend the time of blockade will have an impact on the pace of economic recovery. In addition, emerging markets such as Brazil, India and Russia are also developing rapidly, which may drag down the speed of global economic recovery.

Second, we need to pay attention to the effect of the US stimulus measures and whether we need to continue to raise the price. At present, these measures have only been published for one or two months. If we want to see the actual results, we need to unlock the economy for a period of time before it can be reflected, whether the employment market can be restored, whether the consumption intensity is still in existence, and whether the business failures are particularly serious. "I think these need more economic data to support evidence, and now we see that economic data is not enough." Wang Xinjie said.

At present, the us two parties are debating the fourth round of the economic stimulus plan, and US Treasury Secretary Mnuchin has said that Congress will pass a new round of stimulus in July. Wang Xinjie said that considering the election year this year, the two parties are willing to introduce more policy measures to support the economy and support their candidates. Under such circumstances, the two parties will reach a consensus on the possibility of launching new rescue measures.

The third is geopolitical risk. There will be a lot of political issues in the annual election of the US presidential election. It may be a problem in the United States or a problem for other countries, including Sino US relations. The international geopolitical relationship will also be an important factor affecting the market.

Overall, Wang Xinjie expects us stocks to adjust in the coming quarter, but there will be no big downturn. "For example, to test the lows of March this year, I don't think so. Corporate profits will definitely improve in the future. Therefore, I think the US stocks will have some callbacks in the future, but the rate of callbacks should not be particularly large. The stock market is likely to be a relatively oscillatory trend, and the whole is upward.

Yang Delong, managing director and chief economist of Qianhai open source fund, pointed out to the twenty-first Century economic news reporter that the US economy was greatly affected by the epidemic. It is expected that the recovery will be weaker in the second half of the year, and the downward trend in the US economy will have a negative impact on the trend of US stocks. Relatively speaking, the A share market rebound, to a comprehensive bull market is supported by economic support. He believes that the biggest risk is the risk of the spread of the epidemic, until the outbreak of the inflection point, the U.S. economy is expected to recover steadily.

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