As soon as the A-share market closed, the weekly line of US stocks turned red. Some netizens said, "did the A-share fall in vain?". So in the face of the Fed's interest rate hike cycle, what will US stocks do next and how will A-Shares perform.
Previously, affected by factors such as the tightening expectation of the Federal Reserve, US stocks have continued to adjust since January 2022, and A-Shares have also been affected.
However, on Friday (January 28) local time, the three major indexes of US stocks closed higher by relying on the late trading, and the Dow Jones index rose 1.65%; NASDAQ rose 3.13%; The S & P 500 rose 2.43%.
It is worth noting that the weekly lines of the three major US stock indexes also turned red in one fell swoop. The Dow closed up 1.34%, the NASDAQ closed up 0.01% and the S & P 500 closed up 0.77%.
interest rate hike cycle: how do U.S. stocks perform?
In fact, it is not quite the same as expected. During the Fed's interest rate hike, the performance of US stocks was strong, and the rate of return even exceeded that during the interest rate cut.
The statistical results from Dow Jones market data show that since 1989, during the Fed's interest rate hike, the average return of the Dow Jones industrial average is close to 55%, the return of the standard & Poor's 500 index is 62.9%, and the average positive return of the Nasdaq composite index is 102.7%.
On the contrary, during the Fed's interest rate cut, the average return of the Dow was 23%, the S & P 500 was 21%, and the Nasdaq was 32%.
In a longer time dimension, Keith Lerner, CO chief investment officer of truist, said that in the 12 Fed interest rate hike cycles since the 1950s, the average annual growth rate of stocks was 9%, and positive returns were achieved in 11 of them. The only exception was the 1972-1974 period, which coincided with the 1973-1975 recession.
Although U.S. stocks rose more or fell less during the whole interest rate hike cycle, fluctuations are inevitable. David kostin, chief U.S. stock strategist at Goldman Sachs, also reminded investors that in the three months after the Fed's first interest rate hike in recent interest rate hikes, the S & P market will fall by an average of 6%. However, the rate of return will turn positive to 5% within six months after the first interest rate increase.
market leaders are now divided
As for the Fed's interest rate hike, there are differences among market leaders on how to go next.
Rob sharp, the new CEO of Puxin group, one of the world's largest fund management companies with assets of $1.7 trillion, warned that in the economic environment facing 2022, we should resist the strategy of buying every correction. In particular, once the loose monetary policy is reversed, it is more difficult to predict whether the return will be strong.
Bill gross, the founder of The Pacific Securities Co.Ltd(601099) investment management company (PIMCO), a $2.2 trillion fund management company, said the market had eliminated the mentality of bargain hunting. As the Fed tightens policy, investors, especially new investors who have just experienced a bull market, will avoid buying falling stocks in the "bear market we are beginning to see".
Another view is that we should "buy more when we fall". Bill Ackerman, founder of Pershing square capital management, said his company bought more than 3.1 million shares of Netflix after the share price of streaming media company Netflix plummeted.
Many of our best investments occur when other short-term investors sell blue chip stocks, and the price of blue chip stocks is particularly attractive for long-term investments, Ackerman said in a statement released on Wednesday.
Jonathan gray, President of Blackstone, the world's largest alternative asset manager with $881 billion in assets, also pointed out earlier this week that market volatility and the average NASDAQ share price fell by more than 40% from last year's record high are creating opportunities for the company.
Sister mu, head of ark investment, said this week that asset prices are falling, innovation stocks are being sold and investors can buy at a lower price. However, since the beginning of 2022, Mujie's flagship fund arkk has fallen by 27%.
Considering that the VIX, a measure of market volatility, is still operating at a high level, it is worth observing the sustainability of the abnormal rise at the end of this week. Darrell Cronk, chief investment officer of Wells Fargo wealth and investment management, pointed out that this is a tug of war between bulls and bears, and the adjustment may not have reached a low point.
Fed's interest rate increase path forecast this year
For the Fed's next interest rate increase path, major investment banks have different expectations.
Bank of America is undoubtedly the most radical. Ethan Harris, a strategist at the bank, said in a report to customers on Friday that we now expect seven interest rate increases of 25 basis points each this year.
BNP Paribas currently expects the fed to raise interest rates six times this year, while the latest forecasts of JPMorgan Chase and Deutsche Bank are the same as Goldman Sachs.
At present, the core factor that the Fed needs to deal with is the inflation rate of far more than 2%. The first interest rate increase may break the previous practice, that is, raising interest rates by 50 basis points.
Nomura even predicted that the Central Bank of the Federal Reserve would raise interest rates by 50 basis points in March, which would be the largest interest rate increase by the Federal Reserve since the turn of the century.
Atlanta Fed chairman Bostick came forward to support this view. Bostick said the Fed would take a more aggressive approach if economic data allowed. This is a tool that the Fed has never used in nearly 20 years. The last time was in May 2000, the Fed raised interest rates by 50 basis points under the leadership of then Chairman Alan Greenspan.
fed interest rate hike cycle: A-share performance is relatively independent
So how did A-Shares perform during the Fed's interest rate hike cycle?
According to the statistical data of Haitong Securities Company Limited(600837) Research Report, although the A-share market has not been established for a long time, it has also experienced four rounds of interest rate increase cycles of US stocks
(image source: Haitong Securities Company Limited(600837) Institute)
In the past four interest rate increase cycles of the Federal Reserve, it was found that during the interest rate increase cycle of the Federal Reserve, the global stock market tends to fall first and then rise, while the performance of the A-share market is relatively independent.
The article of the securities times believes that the policy orientation of the Federal Reserve affects the monetary policy of central banks around the world. With the gradual integration of the A-share market into the world, it is bound to be more or less affected by this. But at the same time, we should also note that whether it is capital or fundamentals, A-Shares are more affected by China and are relatively more independent.
The trend of monetary policy also determines that A-Shares are expected to be more independent from the global market. On January 17, the one-year MLF interest rate and the seven-day Omo interest rate were lowered by 10bp On January 20, the central bank announced that the quoted interest rate (LPR) of China's one-year loan market in January was 3.7%, compared with 3.80% last month. The market quoted interest rate (LPR) of the five-year loan was 4.6%, up from 4.65% last month. Boc International (China) Co.Ltd(601696) believes that the trend of wide credit is further clarified.
The A-share market has a comparative valuation advantage and helps to maintain stability in possible global market fluctuations. At present, the rolling P / E ratio of Shanghai stock index is 13.61 times, which is relatively low in the global stock market, ranking 25.41% of the quantile of P / E ratio since 2000.
Chen Guo, chief strategist of China Securities Co.Ltd(601066) securities, said that with the recent interest rate meeting of the Federal Reserve, the market risk aversion was released intensively. From the perspective of fundamentals and market factors, the conditions for counterattack in the A-share market have been met. At present, there is still enough room for the policy to be continuously promoted, and there is a trend to accelerate and strengthen the promotion.
Catherine Yeung, director of Fidelity International Investment, pointed out that looking forward to the year of the tiger, several positive factors will support the Chinese market to usher in the year of the tiger. First, there is more room for monetary policy. Secondly, the valuation of the Chinese market is attractive.
Founder Securities Co.Ltd(601901) said that tapping the "three low" blue chip investment opportunities of low, low and undervalued value will be the place where institutional funds look for the few investment "gold mines" in the first half of the bull market. From the opening characteristics and technical characteristics, the market is near the bottom low point. In order to earn both index and money in the future, taking the "three low" as the investment object is both offensive and defensive α Strategy is also available β Investment direction of space.
