2024-08-12
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1. Focus 1:US stocksThe reason for the adjustment is that the US economy is the key, and US stock earnings also have an impact
Since mid-JulyUS stocksThe adjustments are due to the weakening U.S. economy, concerns about the financial reports of the seven largest technology companies in the U.S., and seasonal patterns of the U.S. stock market.
First, the weakening trend of the US economy has begun to intensify. On the one hand, US employment data fell short of expectations. The number of non-farm payrolls in the United States increased by 114,000 in July, with an estimated increase of 175,000 and a previous value of 206,000. The US unemployment rate in July was 4.3%, the highest since October 2021, with an expected value of 4.1% and a previous value of 4.1%. On the other hand, the US manufacturing boom has declined significantly. The US ISM manufacturing PMI in July was 46.8, the largest contraction in eight months, further exacerbating market concerns about the US economy.
Second, the market is concerned about the financial reports of the seven largest technology companies in the U.S. Since late July, the seven largest technology companies in the U.S. have gradually begun to disclose their interim results. As U.S. technology stocks have risen sharply in the past year, the market is worried that the performance growth will not be as expected, which will be difficult to support further increases in stock prices.
Third, the trend of the US stock market has a relatively obvious seasonal pattern. By analyzing the monthly rise and fall patterns of the US stock market since 1990, it can be found that the probability of the US stock market rising in August and September is relatively low. The reason is that August and September are often the time when the US stock semi-annual reports are concentratedly disclosed. The performance is the focus of the market, which is also more likely to cause market fluctuations.
First, the interest rate hike by the Bank of Japan has exacerbated the adjustment of Japanese stocks. Looking back at the historical interest rate hike cycles in Japan, except for 2006, Japanstock marketAfter the rate hike, there were adjustments. On July 31, 2024, the Bank of Japan voted 7-2 to raise its short-term policy rate from 0.1% to 0.25%. The Nikkei 225 fell by -8.9% in a week, a deeper drop than before.
We believe that the reason is that, on the one hand, the Bank of Japan raised interest rates twice in 2024 for the first time this year, exceeding market expectations in terms of both the rate hike and the pace of the rate hike; on the other hand, since 2024, in addition to raising interest rates, the Bank of Japan has also issued a number of measures to promote the normalization of monetary policy, including ending the government bond yield curve control (YCC) policy and announcing the cancellation of purchases.ETF, cancel the purchase of real estate investment trust funds (J-REIT), etc. Therefore, the recent adjustment of the Japanese stock market is a cumulative reflection of Japan's series of monetary policies.
Second, in the context of interest rate hikes, the rise in yen interest rates has put pressure on yen carry trades. Since the exact scale of yen financing carry trades is difficult to directly describe with data, we use the net position of yen foreign exchange holdings to reflect the changes in carry trades. Based on Bloomberg data, we track the changes in the overall net position of yen foreign exchange by calculating "leveraged fund net position + non-commercial net position + real currency net position".
Since April 2023, the scale of yen net short positions has continued to expand, and at the same time, the Yen Carry Index has hit a new high. Among them, the Yen Carry Index is the USD/JPY interest rate differential return index. By calculating the return obtained by borrowing yen to buy US dollars, it can reflect the yield of yen carry trades, and thus affect the scale of carry trades. However, since the Bank of Japan's unexpected interest rate hike, the scale of yen net short positions has shrunk, and the Yen Carry Index has retreated rapidly, indicating that the higher yen interest rates under the background of interest rate hikes have led to a decrease in yen carry returns, and under this background, the scale of yen carry trades has been under pressure.
Third, the Japanese economy may be affected by the appreciation of the yen. Since 2023, the Japanese economy has shown signs of recovery.GDPThe growth rates in the four quarters were 5.0%, 6.0%, 6.7% and 4.9% respectively. In terms of structure, according to the year-on-year contribution rate of industrial sub-items to nominal GDP announced by the Japanese Cabinet Office, the tertiary industry on the production side and net exports on the demand side have significantly boosted GDP. Therefore, from the perspective of the three major sectors of the Japanese economy, the main driving force of this round of recovery is the export item in the tertiary industry, and the export of goods and services trade may be the main driving factor.
On the one hand, assuming the US economy weakens and the yen appreciates, Japan's exports will be affected; on the other hand, the shrinking scale of yen arbitrage will also indirectly promote the appreciation of the yen, thereby increasing the uncertainty of Japan's economic recovery.
3. Focus 3: Will there be a second round of adjustments in US and Japanese stocks? The third quarter is an important observation period
Regarding the adjustment of US and Japanese stocks, it can be found that the subsequent performance of the US economy is the core variable. On the one hand, the US economy directly affects the US stock market, and the adjustment of the US stock market will also drive the adjustment of the Japanese stock market; on the other hand, assuming that the US economy weakens, the logic of the appreciation of the yen may be further strengthened, which will in turn affect the liquidity of the Japanese stock market.
3.1. The US economy is the most core variable
Looking ahead to the third quarter and even the second half of the year, we believe that uncertainty in the US economic outlook remains high.
First, according to the Sam rule, if the current three-month average is 0.5 percentage points or more higher than the lowest three-month average in the past 12 months, it will mark the early stages of a recession in the U.S. The U.S. unemployment rate in July was 4.3%, and the average of the past three months was 4.13%, which was 0.53% higher than the lowest three-month average in the past 12 months, and basically met the threshold of the Sam rule.
Second, the excess savings of US residents have basically turned negative in the second quarter of 2024. The pressure of this round of inflation in the United States is mainly on the service industry, and one of the reasons for the high inflation in the service industry is that the fiscal subsidies have given residents a large amount of cash, resulting in residents having more excess savings for consumption. However, according to the estimated data of the San Francisco Federal Reserve, as of May 2024, the accumulated excess savings of US residents are about -263 billion US dollars.
Third,US Treasury BondsAfter the end of the term spread inversion, the U.S. economy usually enters a recession phase, where the recession caliber is based on the caliber defined by NBER. Specifically, the short-term interest rate of U.S. Treasuries is often determined by monetary policy, while the term spread is affected by economic expectations, etc. According to historical retrospect, after the end of the inversion of the 10Y and 2Y U.S. Treasury term spreads, it often indicates that a U.S. recession is imminent. Since July 2022, 10Y and 2Y U.S. Treasury bonds have shown obvious inversion characteristics, and the degree of inversion of the term spread has converged significantly recently. According to historical experience, after the end of the inversion, there is a high probability that the U.S. economy will have a recession.
3.2. Assuming the US economy continues to weaken
If the weakening of the US economy is further confirmed, it is highly likely to trigger further adjustments in the US stock market. Historically, the trend of US stocks has a high correlation with the fundamentals of US stocks. Taking the S&P 500 as an example, the trend of the S&P 500 is highly positively correlated with the EPS of the S&P 500. Assuming that the US economy weakens in the future and corporate profits decline, it will further trigger adjustments in the US stock market.
At the same time, assuming the US economy weakens, the logic of yen appreciation may be further strengthened, which will in turn affect the liquidity of the Japanese stock market and the Japanese economy.
As for Japan's recent economic performance, uncertainty in recovery has gradually emerged. In the first quarter of 2024, the real GDP growth rate has turned from positive to negative, reaching -0.7%, and Japan's manufacturing PMI fell below the boom-bust line in July to 49.1%. Against the backdrop of the Bank of Japan's tightening monetary policy and the appreciation of the yen, Japan's export items may continue to be under pressure in the future.
At the same time, assuming that the US stock market continues to adjust, carry trades will continue to be under pressure, which will in turn affect liquidity. Specifically, Japan's international balance of payments statistics show that Japan's investment in the US market has grown at the top in the past three years, which may indirectly reflect that funds borrowed in yen are mostly invested in the US market. Assuming that the US stock market continues to adjust, at the same time, the appreciation of the yen will lead to an increase in carry costs, and the profit margin of carry trades will narrow. Its scale may continue to shrink, which will in turn affect liquidity.
3.3. The third quarter is an important observation window
There is a strong correlation between the trends of U.S. and Japanese stocks. By analyzing the monthly performance of Nikkei 225 and S&P 500 over the past three decades, it can be found that the probability of adjustments in U.S. and Japanese stocks in the third quarter is relatively high.
Taking into account the current US economy, the trend of the Japanese yen, carry trade and other factors, the future trend of the US economy is the core variable. At present, the probability of continued weakening is still high. Further combined with seasonal patterns, August to October is an important observation window.
4. Focus 4: How to view its impact on A-shares? The overall impact is limited, but some structures may have an impact
Assuming that the US and Japanese stocks will further adjust,A sharesHow impact should be assessed.
On the one hand, combined with various valuation indicators such as price-to-earnings ratio and price-to-book ratio, the current A-shares are already at the historical bottom. Therefore, assuming that the US and Japanese stocks will further adjust in the future, it is expected that the overall adjustment space of the A-shares will be limited, and the impact will be more reflected in the structures that have a certain degree of correlation with the trend of the US stock market, such as the Nvidia industry chain or the sectors with heavy holdings of northbound funds.
On the other hand, A-shares are currently in a window period of transition to a structural bull market. More importantly, it is necessary to find clues to lead a new round of structural bull market.
Specifically, combined with the review of structural bull markets such as computers from 2013 to 2015, semiconductors from 2019 to 2020, and lithium batteries from 2020 to 2021, the operation of structural bull markets is usually divided into three stages. The first wave is a general rise, the second wave is a main rise, and the third wave is a compensatory rise. During the first wave of general rise, there is a lack of fundamental clues at this time, and it is usually a general rise driven by expectations. After the general rise, there is usually a shock differentiation. After the shock, the tracks and companies supported by fundamental clues usher in the second wave of the main rise. At this time, we should pay attention to the leaders with positioning and profit advantages. After the main rise, there is usually another shock differentiation. After the shock, relatively low-level companies that benefit from the diffusion of fundamentals usually usher in a compensatory rise. Among them, the most noteworthy is the release rhythm of industrial profits. When the first wave of market starts, profits are often in the early stage of reversal, usually corresponding to a negative profit growth rate. After the rest period, as profits enter the channel of quarterly reversal upward, the structural bull market ushers in the main rise.
Combining the above clues, we believe that we should focus on the newly listed stocks in the past 2-3 years, and on the other hand, focus on potential directions such as domestic computing power, consumer electronics, and AI applications around the AI industry chain.
Among them, for the domestic computing power chain, it has gone through the expectation-driven general rise stage and experienced a rest period. It is currently entering a fundamental-driven rise stage, and the subsequent profit release is the core driving variable. For consumer electronics, the second quarter of 2024 is an expectation-driven rise stage, and it is currently entering a rest period adjustment stage. After this stage, we should focus on the fundamental clues of consumer electronics. For AI applications, robots and autonomous driving are typical representatives. It is currently in an event-driven theme stage, and the mid-term focus is on the birth of explosive products.
Author: Wang Yang S1230520080004, Chen Hao
Source: Wang Yang Strategy Research
Original title: "Will there be a second round of adjustments in US and Japanese stocks?"
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