How will the markets play out after the US stock market is expected to cool down?

Views 21162024.05.23

What is the impact on the US stock market after the US interest rate cut is expected to cool down?

THE RECENT TWO-WEEK PERFORMANCE OF U.S. STOCKS HAS LEFT INVESTORS WORRIED ABOUT THE POSSIBILITY OF A PEAK, WITH INTEREST RATE CUTS EXPECTED TO SLOW DOWN CONSIDERABLY. The economic performance was far better than expected, leading Fed officials to start talking about the need for no interest rate cuts. Here are Fedwatch data for the share exchange as of April 8:

Fedwatch Data

It can be seen from the above data that the probability of a rate cut on June 12 is already less than 50%, but it does not mean that there will be no rate cuts this year. Only the pace of interest rate cuts may be delayed until the second half of the year, but the number may be reduced to three times more than previously expected, dragging long-term US debt yields closer to higher highs and causing US stocks to adjust slightly.

US10Y US 10-year Treasury yield

RecentInterest Rate Reduction ExpectedThe first turning point in the cooling was the sharp rise in the price of goods, whichgeopoliticalAs a result, higher prices for non-ferrous metals such as gold and copper, and energy prices have reignited the unshakeable inflationary pressure in the United States. The US ISM Manufacturing Index, released on April 1, also unexpectedly fell short of expectations. The ISM Manufacturing Index returned to above the Dry Dividing Range 50 since September 2022, with manufacturing resuming growth but at the same time putting pressure on price gains, a major factor in the market's judgment that interest rate cuts will be delayed.

However, after the release of non-farm data last week, expectations of a cooling of interest rates were unchanged as the US unemployment rate and job additions beat market expectations. But after the data was releasedUS StocksThe main reason is that non-farm data reflect the strength of the US economy and the market worries about the risks of a hard landing in the US economy. As long as the data continues to support the US economy, there is no chance of a mild soft landing, US equities are unlikely to see a more surprising adjustment, at most just the emergence of recent funds fromTechnology StockstransferringEnergy Nonferrous Metals StocksThe phenomenon also does not prevent the P500 index from challenging its highs again in the aftermarket.

Going into the week, many investors are looking at the US CPI data released on Tuesday, April 9, which will determine the path of future interest rates from inflation data, but the authors think that it is more worth paying attention to is the US PPI data released on Thursday April 11, after all, the main source of this inflation pressure is driven by commodity prices. The outlook from the producer price index PPI will be stronger, and bulls can keep a close eye on what impact Thursday's inflation data will have on the market.

Finally, if investors are confused about interest rate movements and the relationship between the stock market, a simpler and more direct approach is to use technical analysis to judge the movement of US stocks. From the following image $S&P 500 Index(.SPX.US)$You can see:

.SPX S&P 500

$S&P 500 Index(.SPX.US)$Remaining in a bullish channel, it can be noted that since March of this year, the RSI and indices have begun to show signs of a rebound, indicating that the upward momentum has weakened, but this does not mean that the index is certain to peak. A simple view on the short line is to watch for whether the RSI can continue to maintain upward momentum above the 50 level, and the index remains in the middle of the upward channel, i.e., Thursday's low of 5146 is arguably a more noteworthy support position.

Finally, if you are interested in learning more technical analysis techniques, you can join us on April 11Technical Analysis Seminar, a series of technical analysis tutorials and sharing will be launched in physical stores on three Thursdays in a row this month.



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