Recently, we have been recommending an oversold rebound in US stocks based on subtle changes in macro and micro perspectives. The main reasons were also outlined in the weekly strategy:
1. Last Wednesday’s Fed meeting minutes showed an improved outlook on inflation. With no ability to improve the supply chain, the Fed’s aggressive interest rate hikes to suppress demand will very likely lead to a hard economic landing. Recently, many economists, including Nobel laureate Joseph Stiglitz, have criticized the Fed's policy, claiming it should focus more on the supply side. Therefore, in the May meeting minutes, the Fed raised its core inflation forecasts for this year and next year, indicating that tolerating some inflation might be a tough choice given the short-term inability to improve the supply situation.
2. After the market crash, recent statements from Fed voting members have started to reassure the markets: 'Hawk' James Bullard no longer mentioned a 75 basis point hike, hinting that there would only be room for rate hikes next year after the current ones; Raphael Bostic directly hinted that rate hikes could pause as early as September. Moreover, data from CME shows that the probability of a 50-basis-point rate hike in July has actually declined after the market slump. This indicates that after the market crash, the Fed had to balance the risks of an economic recession caused by aggressive rate hikes and significant market volatility. Following the Fed's unexpectedly 'dovish' remarks, US stocks finally saw an oversold rebound.
3. Previously, under intense inflationary pressure, the yield on the 10-year US Treasury bond kept strengthening, and the US Dollar Index hit a 20-year high. Recently, both the US Dollar Index and the 10-year Treasury yield have begun to show signs of peaking and retreating, and the market's expectations for future interest rate levels...