Behind The Continuous High Of US Stocks: The Carnival Election Dominated By Technology Stocks May Become An Uncertain Factor

The S & P 500 is up 60% since its March 23 low, 13% since June 30 and more than 7% so far this month. If there is no accident, August this year is expected to be the biggest month for the S & P 500 since 1984.

However, it is still dominated by technology stocks led by apple, Amazon, Microsoft, Facebook and Google's parent company alphabet. According to statistics, the total market value of the U.S. technology sector has exceeded that of the European stock market. Some analysts believe that the three major stock indexes dominated by technology stocks are not healthy at present and there is a risk of callback.

In addition, with the US Democratic Party and the Republican Party successively determining the presidential candidates, the US election has entered a critical stage. Analysts believe that according to the different strategies of both sides, the election results will affect the trend of US stocks.

On August 31 local time, US stocks ushered in the last trading day of August. After the opening, the three major stock indexes rose and fell. As of press release, the Dow Jones Industrial Average fell 0.47% to 28518.98; the Nasdaq composite index rose 0.3% to 11731.07; and the S & P 500 index fell 0.05% to 3506.38.

The carnival of technology stocks may not be sustainable

Driven by apple, Amazon, Facebook, Microsoft and other technology stocks, U.S. stocks performed well in August, with the S & P 500 index and the NASDAQ index rising for four consecutive weeks. The S & P 500 index broke through 3500 points on August 28. Since August, the NASDAQ index has risen by 8.84%, the S & P 500 index has risen by 7.24%, and the Dow Jones industrial index has also risen by 8.42%, which has completely recovered the lost land lost during the epidemic. Once the gains of the three major indexes continue on August 31, the US stock market will record its best performance since the 1980s.

In fact, U.S. stocks are not just strong in August. Since March because of the epidemic and plummeted, the three major stock indexes have achieved a rapid rebound. Take the S & P 500, which rose 12.7% in April, 4.5% in May, 1.8% in June, 5.5% in July and 7.24% so far in August.

According to the analysis, the rise in US stocks in August was mainly due to the optimism on the new crown treatment / vaccine and the joint promotion of the Federal Reserve's large-scale stimulus measures.

Hong Hao, managing director of BOCOM international and head of research department, told 21st century economic reporter that this round of rebound is the fastest repair in the history of US stocks, and its valuation has basically reached the top of history.

The chief financial officer (CFO) of many enterprises also thinks that the valuation of US stocks is too high. According to Deloitte's latest quarterly survey, about 84% of the 155 CFOs in North America who participated in the survey thought the US stock prices were too high, the second highest level in a decade since Deloitte began collecting data. By contrast, only 2% of respondents thought US stocks looked cheap.

Nicholas colas, co-founder of datatrek research, said, "August looked like capital markets were supporting the cyclical recovery of the US economy."

However, colas also admitted that there was a huge risk in August's external rate of return - Apple's share price was up 18%. Without apple, he pointed out, the S & P 500 would have risen about 4.1% this month.

In addition to apple, shares of other tech giants also performed strongly. According to data from the Bank of America's global research division, the technology stocks that have dominated the rise in the US stock market in recent years have passed another milestone - the market value of the sector has surpassed that of the entire European stock market for the first time.

In a report, Bank of America said the market value of U.S. technology stocks reached $9.1 trillion, more than the combined market value of European stock markets (including the UK and Switzerland) ($8.9 trillion). For reference, European stock markets were four times the size of US technology stocks in 2007.

The transcendence of technology stocks also reflects the overall trend of us and European stocks. Since the beginning of 2010, the S & P 500 is up nearly 200%, the Stoxx 50 is up 13.4%, and the FTSE 100 is up just under 11%.

Some market strategists are worried as technology stocks in the US are climbing. At the beginning of 2020, apple, Microsoft, Google's parent company alphabet, Amazon and Facebook accounted for 17.5% of the companies in the S & P 500 index. At present, the proportion of the five technology companies has exceeded 20%.

Mike Wilson, chief U.S. stock strategist at Morgan Stanley, warned that only a few leading technology stocks such as Apple will be unable to support the US stock market to continue to rise. In the face of the impact of future yield rise, S & P may encounter a sharp correction soon.

David Rosenberg, founder and economist of Rosenberg research, is concerned about the huge role of several large technology companies in pushing us stocks to historical highs. He believes that bubble valuations of technology stocks, as well as the poor performance of industries that are expected to prosper during the full recovery, bodes well for a reversal.

Alec young, chief investment officer of Tactical ALPHA, also stressed that it was "unhealthy" for the three major indexes to be dominated by several technology stocks.

Jim Paulson, chief investment strategist at leuthold group, admits that the next step will be to reduce the number of technology stocks, and will hold more cyclical stocks, international stocks and small stocks.

Challenging September

In contrast, September is expected to be a weak month for the market. Historically, the S & P 500 fell an average of 0.5% in September, while the Dow Jones Industrial Average fell 1%. Ryan Detrick, market strategist at LPL financial, points out that historically, the S & P 500 index rose more than 5% twice in August 1986 and 2000, and then fell between 5% and 8% in September.

However, in the first week of September, U.S. stocks are likely to continue their strong performance, as analysts are slightly optimistic about the third quarter economic data.

On September 4 local time, the U.S. Labor Department released the August non farm employment report, and the unemployment rate is expected to return to single digits. Recently, the U.S. job market has been worrying, and the number of people applying for unemployment benefits for the first time every week is still around 1 million. According to the refinitiv survey, economists expect 1.4 million new jobs in August, down from 1.76 million in July, and the unemployment rate is expected to drop from 10.2% to 9.8%.

Aneta markowska, chief economist at Jefferies, said monthly employment data were difficult to predict because of its lack of correlation with initial jobless claims, which are usually a strong barometer of monthly employment data but have declined in importance since the outbreak.

Michael Schumacher, head of interest rate strategy at Wells Fargo, said the market had been arguing over whether employment growth was beginning to level off in the past few weeks. "This makes me think that if the data is better than expected, the risk assets may shrink significantly, but if the data is slightly worse than expected, the impact will be less."

Schumacher added that the market might pay some attention to the trump administration's efforts so far struggling to launch a new stimulus package. However, the market has been ignoring this issue for the time being as the divisions between the US Congress seem to be growing. "If there is no bailout in the next six months, small businesses will be affected."

In addition, the Federal Reserve will hold an interest rate meeting from September 16 to 17. However, as the Federal Reserve announced last week that it will adopt the "average inflation targeting system", the market will pay less attention to the meeting. Young believes that the news of the Fed's loose monetary policy has been digested by the market.

However, Sam Stovall, CFRA's chief investment strategist, believes that the stock market "will still be bathed in the aura of fed easing.".

General election may affect the trend of US stock market

While the three major stock indexes of the United States continue to rise, the Democratic Party and the Republican Party of the United States have confirmed their presidential candidates respectively. Former Vice President Biden has become the presidential candidate of the Democratic Party of the United States, and the current president trump has become the presidential candidate of the Republican Party of the United States. Bespoke investment group stressed that the stock market had positive information, and pointed out that there were various degrees of adverse factors in the market, such as the upcoming election.

According to Xinhua news agency, trump camp's defensive focus in the election includes promising to quickly restore employment, further tax cuts, and "making the United States a manufacturing superpower in the world". Biden attacked Trump's trade policy to push up the cost of American products. Tax cuts are intended to provide benefits to the wealthiest and most profitable large companies in the United States.

According to the 21st century economic report, tax is a major focus of disputes between the two sides. Biden has promised to raise taxes on people earning more than $400000 a year, raise corporate taxes from 21% to 28%, and impose additional taxes on foreign profits. It is predicted that this policy will generate about $4 trillion in tax revenue in ten years. Trump, on the other hand, said the tax cuts implemented in his first term would be extended to businesses and the rich.

Shao Yu, chief economist of Orient Securities, told reporters of the 21st century economic report that the outcome of the US election will affect the trend of US stocks. "If Biden wins, he may adopt stricter regulatory policies on Wall Street and large technology companies, and may also make some fine-tuning on monetary policy. In this way, it may pose a greater threat to the stock market which has continuously set a record high. If trump is re elected, he will adopt more liquidity easing policies, which will have a certain pulling effect on the economy and the stock market in the short term. "

Hong Hao told reporters that if trump is re elected, it will be more beneficial for US stocks. "Trump takes the stock market as his work indicator, so he can set it directly."

However, JPMorgan believes Biden's election may be good for the stock market. JPMorgan's analysts warned in a report that "the risk of a flurry of news may be greater than the actual policy risk." The report said that after Biden was elected president, there are many factors that may be beneficial to the stock market.

Dubravko lakos bujas, JP Morgan's chief U.S. equity strategy director, wrote, "given that the current priorities may be economic weakness, business recovery and employment growth, rather than policies that may inhibit economic growth or even jeopardize the outcome of the 2022 mid-term election, the extent to which corporate tax increases may ultimately be lower than currently discussed."

Lakos bujas said Biden's other policy proposals, including infrastructure spending, softening tariff wording and raising the federal minimum wage, should "have a positive impact on S & P 500 revenue and largely offset the negative impact of corporate taxes.".

Sameer Samana, a senior global market strategist at Wells Fargo's Investment Research Institute, believes that a big tax increase is unlikely to happen in the short term, given that "the overall U.S. economy is still in a downturn.".

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