“Recession” expectations in asset prices. This week (2022051620220520), the three major US stock indexes continued to record declines, with the Dow Jones index, S & P 500 and Nasdaq falling 2.9%, 3.8% and 3.0% respectively. This “rare” decline also makes investors think of “crisis” and “recession”. In the 634 weeks since 2010, only 24 of the three major US stock indexes have risen or fallen in a single week, which is greater than this week. In fact, the expectation of this “recession” has been reflected in asset prices since mid March, as shown by the retreat of LME3 month copper and LME3 month aluminum from the high point on March 7, which have fallen by 11.7% and 26% respectively; The settlement price of Brent crude oil futures fell by 7.4% from the high point on March 23; The S & P 500 has followed, falling 15.2% since its high on March 30. This recession transaction is essentially a “prediction” of the future position under the high slowdown of the US economy and the tightening pressure brought by inflation.
Asset prices reflect expectations, but cannot be used as a basis for expectations. Since the asset price reflects the future judgment made by investors based on the current information, when the fundamental information changes, the asset price will be corrected accordingly. Taking August 2015 and February 2016, where the performance of commodities and US stocks is similar to the current coordinated decline, as an example, when the commodity Association and the stock market fell together in August 2015, if investors believe that the recession is coming, they will find that the fundamentals and the Fed’s statement improved from September to October, and the market rebounded strongly again. When investors indicated “recovery” expectations with asset prices, the market began to continue trading recession due to changes in fundamentals. When the recession trading signal was very obvious, from March 2016, the “interest rate hike” was weaker than expected, and the economies of China and the United States showed signs of stabilization, which is actually the starting point of a new round of global recovery cycle. From this historical experience, the signals of economic fundamentals both verify and correct expectations, which makes us think that the market is always correct from the perspective of the rearview mirror: if the expectations are correct, the trend continues, and the capital market predicts the economic trend; If the expected error is corrected quickly, it becomes a fluctuation in the trend. It is better to use the fundamental expectation of market transactions to judge the fundamental investors than to “look at the line” transactions directly. What makes us obtain excess returns is the ability to recognize the deviation between reality and expectation.
The current marginal changes in fundamentals focus on China’s demand. Marginal changes in fundamentals this week are more supportive of the direction that China’s demand will gradually recover. The most important message is that the central bank announced on Friday that the LPR would be reduced by 15bp in five-year period. Although there are differences in the market on whether to stimulate residents to increase leverage after the reduction, it is widely recognized that the interest rate reduction reflects the strong will of “steady growth”; Secondly, since March 2022, the relaxation of real estate policy has accelerated significantly and the intensity is further strengthened; Finally, the social aspect of Shanghai was cleared and the “resumption of work and production” was gradually promoted. On May 16, Shanghai made it clear that the normal production and life of the whole city would be fully restored from June 1 to mid and late June. With the direction of demand recovery determined, the next scenario will be: capacity utilization recovery → investment recovery and overweight → income and consumption recovery. The “cognitive paradox” in the general view of investors is that they believe that the Chinese market will stabilize with “stable growth”, but they are not optimistic about the upstream resources with the most prominent supply contradiction and the value stocks with the largest valuation elasticity. Looking forward to the future, there is no substantial change in the fundamental evolution and the path we preset a month ago: the middle and lower reaches will experience the initial marginal improvement of “finished goods destocking”, but the contradiction will soon be transmitted to the upstream where there is no excessive inventory and capacity redundancy.
In the calm, prepare for a new round of cyclical Market: after nearly a month’s rebound, some of the growth sectors are close to history, and the rebound range has exceeded the historical center, but it may be the “reversal illusion” caused by the excessive decline in the early stage exceeding the historical average. It is noteworthy that in this round of rebound, the differentiation and convergence of the fund has obviously not kept up with the convergence of asset prices since this year, and “position covering” constitutes a potential reason. This week’s asset price performance seems to be “magnificent”. In fact, it is “calm”. The preset path of fundamentals is no different from that before: the growth rebound is coming to an end, and the sub industry with supply and demand independent of inflation can be stable and far-reaching. The real cycle is coming back. Grasp the certainty of energy, the repair elasticity of metal and the importance of energy transportation. Recommendations: oil and gas, aluminum, copper, coal, oil transportation, gold, real estate, chemical fertilizer and banks.
Risk tips: 1) inflation is lower than expected; 2) The economic downturn exceeded expectations; 3) The epidemic prevention and control was not as expected
