From 1990 to 2020, U.S. stocks experienced six pullbacks in the fourth quarter (Table 1). Since November 2021, under the background of repeated epidemic and rising inflation expectations, U.S. stocks may fall into a "strange circle" of adjustment again. This paper focuses on resuming 2018, which is similar to the economic fundamentals of 2021. Taking history as a mirror, this paper looks forward to the possible risks faced by U.S. stocks in 2022.
The analysis of the performance of various industries in the six US stock pullbacks from 1990 to 2018 shows that the performance of the defensive sector has been verified, and the medical sector has excess returns relative to the S & P 500 index in each pullback. In addition, public utilities and mandatory consumption have also achieved good results, with excess returns on 5 of the 6 market pullbacks.
Judging from the causes of the US stock correction in the fourth quarter, except that 2018 was caused by the policy side of the Fed's policy mistakes, other causes were events (such as the European debt crisis, Lehman event, etc.).
Economic fundamentals in 2018 and today (November to December 2021) the situation is similar: the recovery of the employment market is good, but inflation is out of tune. In 2018, in order to deal with inflation, the Federal Reserve raised interest rates four times, one in the first and second quarters respectively, which did not have a significant impact on the stock market. However, in the fourth quarter, the Federal Reserve raised interest rates twice in a row, making the interest rate reach the highest level since 2008, and the rate increase speed is too fast As a result, the S & P 500 index fell nearly 20% in the fourth quarter.
Since the end of November this year, US stocks have experienced two waves of decline:
The first wave was caused by the epidemic. On 24 November, South Africa reported the highly infectious variant strain of Omicron to who; On November 26, who announced that Omicron was listed as a "concern mutant". On that day, the S & P 500 index fell 2.3%, breaking the upward trend since October.
The second wave was caused by the superposition of the epidemic situation and the expected rise in interest rates. In December, Powell and other Fed officials successively acknowledged the non transitory nature of inflation and the hawkish turn in the dot matrix of the interest rate meeting. In addition, Omicron replaced Delta as the mainstream covid-19 strain in the United States and caused a surge in the number of new cases. Under the superposition of the two, US stocks fell continuously from December 16 to 18.
In terms of industries, defensive medical and public utilities outperformed the cyclical industries in the two waves of decline in the market since November 2021, while the required consumption rebounded strongly in the second wave of decline.
Looking forward to 2022, US stocks will still face two major risks: repeated epidemic and too fast interest rate hike. However, the impact of several waves of epidemic on US stocks is marginal. With the improvement of policy response to the epidemic, we expect that the impact of repeated epidemic on US stocks in the future will be limited, but we need to be vigilant against the callback risk brought by inflation.
The suppression of high inflation in the United States on growth stocks has emerged. Since the outbreak, the Federal Reserve has adopted extremely loose monetary policy to support the economy. However, since June 2021, inflation has continued to reach a new high, forcing the Federal Reserve to announce the acceleration of taper at the interest rate meeting in December and the hawkish turn of the dot matrix for the number and rhythm guidance of interest rate increases in 2022. When the interest rate expectation and real interest rate rise, the increase of discount rate leads to the suppression of overvalued and long-term growth stocks. As shown in, from November 1 to December 20, U.S. growth stocks underperformed value stocks.
In 2022, under the market expectation of the tightening of U.S. monetary policy, be alert to market fluctuations from overvalued and long-term growth stocks.
Review of overseas markets on December 22, 2021: on December 22, overseas stock markets collectively closed up. In terms of US stocks, the Dow rose 0.74%, the S & P 500 index rose 1.02%, and the NASDAQ rose 1.18%; In Europe, Germany's DAX index rose 0.95%, France's CAC40 index rose 1.24%, Britain's FTSE 100 index rose 0.61%, and Italy's FTSE MIB index rose 0.66%. Most US bond yields fell, with two-year US bond yields falling 0.6bp to 0.67%, 10-year US bond yields falling 1.1bp to 1.46%, and 30-year US bond yields falling 1.3 basis points to 1.9%. International oil prices rose collectively. The US oil contract in February 2022 rose 2.7% to US $73 / barrel, and the oil distribution contract in March 2022 rose 2.2% to US $76 / barrel. COMEX gold futures closed up 0.9% at US $1805 / oz, and LME copper rose 1.1% to US $9642 / ton. The dollar weakened and the dollar index fell 0.4% to 96.
Risk tip: the epidemic spread out of control, and U.S. inflation soared out of control
