The U.S. stock market may be facing a tough period, but the "long bull trend" remains unchanged
The global macro research director at Fidelity Investments pointed out that the U.S. stock market is currently experiencing a seasonal difficult period. Despite concerns about selling pressure and economic recession, the overall bullish trend still exists. He expects this period of instability to continue until October and believes that U.S. stock profit growth is accelerating, with a decrease in funding costs. As long as it is not in the early stages of an economic recession, the outlook for common stocks remains optimistic. He noted that the U.S. stock market has risen by 61% in the past 22 months, indicating that the bull market still has potential
According to the financial news app Zhitong Finance, the global macro research director of Fidelity Investments, one of the world's largest investment institutions, stated that the US stock market is currently going through a difficult seasonal period, which is part of a larger narrative of the increasing duration of the cyclical bull market.
As of the close of last Friday, last week was arguably the strongest week of performance for the US benchmark index - the S&P 500 Index so far this year. However, in the journey of the bull market, the US stock market recently experienced a significant sell-off, mainly due to market concerns about the timing of a possible rate cut by the Federal Reserve, growing concerns about an economic recession, and a global risk asset sell-off triggered by unwinding of yen carry trades. The S&P 500 Index once fell more than 8% from the historical closing high set in July, but the decline has now narrowed to around 2%.
Jurrien Timmer from Fidelity Investments posted an article on social media platform X last Friday, stating that the US stock market is currently in an unstable period of seasonal volatility, expected to last from August through the first half of October. In another post on LinkedIn on Friday, he wrote that the "bullish reasons" for the stock market are "not as convincing as they were a few months ago, largely because the market leaders (i.e. tech giants) have become so large in market capitalization that wherever they go, the major indices are likely to follow closely behind."
However, statistically speaking, he is not betting on the end of the US stock market bull market - at least not now. "Earnings growth for US equities is accelerating, and the cost of capital is declining," he stated on LinkedIn. "As long as we are not at the beginning of an economic recession, there really isn't much to dislike about common stocks."
He emphasized that a typical bull market lasts at least 30 months, with gains of around 90%. "So far, we are at 22 months and 61% (at the recent peak)," he wrote. He also stated, "My reasoned guess analysis is that the cyclical bull market has entered a more mature, rational, and more volatile stage, with upward space being continuously squeezed, and there may be more opportunities for correction and adjustment. In technical analysis terms, we call it a bull market distribution."
Timmer said, "But ultimately, I think this is just a summer storm, not the beginning of a broader superstorm." "So investors remember (in the market and in life) to stay balanced, remember, double-digit long-term returns in the stock market belong only to those who can safely weather the occasional storms."
With the US stock market, as well as most stock markets in Asia and Europe, rebounding strongly, more and more market analysts believe that the "summer stock market sell-off" this year looks more like a "pause-style interlude" in this bull market, rather than the beginning of the end of the bull market.
With expectations of a "soft landing" for the US economy, the incredibly strong scale of stock buybacks by US companies, and the continued expansion of profit growth expectations, the US stock market and global stock markets are expected to remain resilient in the long bull trend, but may still experience short-term volatility Tony Pasquariello, Global Head of Hedge Fund Research at Goldman Sachs, stated that the Federal Reserve is preparing to start a new round of interest rate cuts, which will create favorable conditions for the US stock market. However, investors still need to find a way out in the volatile market.
Goldman Sachs evaluated the risk/return of the market in a report last Friday. Recently, concerns about a US economic recession had pushed the Wall Street's key volatility index, the VIX, to levels above 65, similar to the levels during the COVID-19 pandemic, causing the S&P 500 index to plummet under panic. Market concerns also led to a 12% plunge in the Nikkei 225 index. However, subsequently, the S&P 500 index narrowed its decline to about 2%, and the Nikkei recovered all its losses from "Black Monday".
"In the end, as we move past the relatively tight liquidity of August and enter an extremely busy autumn, I expect the trading environment to remain volatile, so I will stick to reducing the portfolio to only hold the highest quality assets," Pasquariello wrote. He emphasized that the US economy "has enduring resilience," and if the Federal Reserve cuts interest rates by a total of about 200 basis points in this round, it will create "a healthier macro environment for stocks and other risk assets".
"However, at the same time, I believe the market will continue to focus on earnings growth trajectories and geopolitical news," he said. "In addition, the narrative around artificial intelligence may not be as one-sided as it was a few months ago."