US Stock Market
Inflation announcement, is there a chance for US stocks?
US Inflation announcement, is there a chance for US stocks?
Today, the United States announced that the unseasonably adjusted CPI rose 8.5% year-on-year in July, and is expected to rise by 8.7%, and the previous value rose by 9.1%. The core CPI rose 5.9% year-on-year in July, compared to expectations of 6.1% and the previous value of 5.9%. Nasdaq futures rose more than 2% after the news, Dow futures rose more than 1% and S&P 500 futures rose about 1.5%. Is now a good time to invest in US stocks?
First of all, to sum up the U.S. economy and the U.S. stock market in the first half of the year in summary, that is, the economy is very bad, and the stock market is also very bad.
First, there are geopolitical conflicts, the most important being the Russian-Ukrainian war. Russia is the world's second largest oil exporter and the largest natural gas exporter. In terms of grain exports, Russia and Ukraine together account for 30% of the world, more than the United States. War, European and American sanctions against Russia, and Russia The countermeasures have sent global energy and food prices soaring, pushing up inflation and hurting the economy.
The second is the flood of liquidity. Since the Reagan era, the United States has gradually formed an economic growth model that relies on currency. As long as the economy has a problem, the money printing machine will be turned on. Of course, the dollar is a global currency in circulation, and they have the ability to do this. rollover. After the epidemic in 2020, the Fed's balance sheet more than doubled to an unprecedented 8 trillion yuan, which is one of the main culprits of high inflation.
Third, the disruption of the global industrial chain and supply chain. It is composed of multiple factors. Wars, epidemics, and games between major powers are all reasons. Such interruptions will directly lead to rising commodity prices, lower economic efficiency, damage to the profitability of enterprises in the middle, and consumption power of the lower layers.
Fourth, the Fed's rate hike. On March 16, the first rate hike was 25 basis points; on May 4, the second rate hike was 50 basis points; on June 16, the rate hike was 75 basis points, which was the largest rate hike in the United States since 1994; On July 28, the interest rate was raised for the fourth time by 75 basis points. In order to control inflation, the interest rate will be raised to the level of 3.25-3.5% by the end of this year, which means that there are still 175 basis points to be increased.
Overall, the intertwined negative effects of geopolitics, the epidemic, and high inflation are killing performance (fundamentals), and the negative impact of raising interest rates is killing valuations.
There are three main drivers of US inflation (with a combined weight of 62%) - energy, housing and food prices.
- The CPI data this time is lower than the previous month, mainly due to the decline in energy costs. Gasoline prices fell 7.7% in July, the biggest drop since April 2020, after rising 11.2% in the previous month.
- According to the American Automobile Association (AAA), gasoline prices have fallen sharply after soaring to a record high of more than $5 a gallon in mid-June, and are now down nearly 20%.
- Food costs rose 10.9% from a year earlier, the highest level since 1979.
- Housing costs, the largest component of the services sector and accounting for about a third of the overall CPI, rose 0.5% from June and 5.7% from a year earlier, the highest level since 1991. This reflected a 0.7% rise in prime residential rents.
Among the 3 major factors, some are still at a high level, and some are still in a downward trend. In general, they are showing a downward trend.
After reading the macro economy, look at the recent large companies performance result.
The overall profitability of the company is not as bad as previously expected. Specifically, look at the latest financial reports of several heavyweight stocks in the S&P 500: Apple: The third fiscal quarter was higher than market expectations; Microsoft: The fourth fiscal quarter revenue increased by 12% year-on-year. %; Amazon: revenue increased by 7.2% year-on-year in the second fiscal quarter; Tesla: revenue increased by 42% year-on-year in the second fiscal quarter,
Likewise, the revenue of these companies will be affected by the recession, but the situation is not as bad as expected. In terms of valuation, taking the S&P 500 as an example, it has fallen back to the average (20 times) of the past 10 years, close to the level of 2018.
Are U.S. stocks worth investing in at the moment? Determined by the most basic questions, have the fundamentals of U.S. stock changed?
There is no need to assume that the United States is over because of a recession. Now that the recession has occurred, investors should pay more attention to when the bottom is reached, when it will recover, and what investment opportunities will emerge in the process.
As the most mature market in the world, the US stock market is also the market with the most complete system. The US stock market is also a place with a high degree of marketization. If you want to survive in such a market, whether it is a listed company or an investor, it must be towards the business fundamental direction.
In other words, listed companies need to have excellent strength, good business models, excellent management, and competitive products, otherwise they will be easily abandoned by the market. Conversely, investors can only embrace such companies. In order to continue to obtain good returns.
Therefore, the most important principle of investing in U.S. stocks, and the best strategy to balance returns and risks, is to embrace those companies that are truly powerful and can truly return shareholders, specifically, large companies in various fields in the United States.
Louis Yap
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