To The Moon

Hello Tigers

I am the Chief Economist at Horizon Financial Group and haveI have 12 years of experience as a visiting professor at New York College.

Below are some of my expected views on the U.S. economy and U.S. equities in the second half of the year.

• The real impact of Fitch's downgrade of U.S. government bonds on the financial market is not small

• In the short term (3-6 months), there is no hope for an interest rate cut by the Fed

• Thank you to the IRA Act to stimulate the return of U.S. manufacturing, it is currently possible NOT THE TIME to predict a recession

• In H223, we are bullish on the oversold sectors of biotech, financial technology, and REITs, which are supported by AI technology

Disclaimer: The views in this article are for communication purposes only and not as direct investment advice. Volatility of a single stock in the secondary market requires comprehensive consideration of many factors.

Disclaimer: The views in the article are only for communication, not as direct investment advice. The volatility of a single stock in the secondary market requires comprehensive consideration of many factors.

1.The fact that Fitch’s downgrade of U.S. debt has a considerable impact on the financial market

Let me take you back to 2011 when the $S&P 500(.SPX)$ lowered the market performance of US government bonds from AAA to AA +. The downgrade 12 years ago was 2 days earlier than this announcement, probably August 1.

After the announcement, the market reaction was huge. First, U.S. stocks plunged, emerging market stocks fell, and then U.S. Treasury bonds surged.

And the market performance after the downgrade this time seems to be similar to 2011, but there are also differences. The biggest difference is that U.S. government bonds fell sharply.

This difference is reflected in the fact that the U.S. debt level is much higher than the debt level in 2011, so the downgrade will have a big impact on the bond market, especially for medium- and long-term U.S. Treasury bonds. If the yield on the 30-year U.S. bonds is above 4% or above 4.3%, imagine that the impact on the capital market (cost, liquidity) is still very large.

In addition, we have seen that the $S&P 500(.SPX)$ has consistently made new highs in 2023, but after the downgrade was announced, the U.S. stock market fell 4 days in a row. We can also say that this has a great impact on volatility. Therefore, this downgrade actually has a significant impact on the financial market.

2. The US interest rate hike is coming to an end? How will the Fed's future interest rate path affect the trend of US stocks?

The Fed has already raised rates 11 times this round, and the next rate decision in September is expected to include an increase. The main reason is that Fed officials believe that inflation in the United States has not fallen to 2%.

A look at the actual situation of the whole market: the financial situation of American companies is definitely deteriorating: credit ratings and company fundamentals (including cash flow, etc.) are deteriorating for more and more companies. Default rates on credit cards, including auto loans, have also increased in recent months for individuals in the United States.

It is fair to say that the negative impact of this round of interest rate hikes on the U.S. economy, businesses and individuals has become increasingly obvious! Interest rates and inflation are almost out of control, corporate financing costs are over 8% to 9% in some cases, and the housing market in the United States is also very bad. If the Fed has to wait until inflation is very low before it stops raising interest rates or starts lowering rates again, I think it may be all too late to improve the negative situation.

Although Wall Street is expecting rate cuts, I think the Fed has no intention of cutting rates in the short term (3-6 months) and will continue to raise rates. As an investor, all you can do is constantly adjust your portfolio to the Federal Reserve's current interest rate policy.

3. Will there will be a recession in US during the H223?

The U.S. economy is not currently in recession because U.S. consumption is still growing strongly, with 70% of the U.S. economy's GDP coming from consumption growth. The core of consumption growth comes from strong employment, and the most important reason for the employment level is actually the inflation reduction (IRA) that the United States has adopted starting in 2022, which has led many companies, global companies, to move their production back to the United States.

The current monthly investment level in the U.S. manufacturing industry is 3 to 5 times higher than in previous years. These large-scale production shifts back to the United States include not only high-end manufacturing, but also some unimaginable low-end manufacturing (e.g., sports shoes, etc., are made in the United States) and mid-end manufacturing (e.g., washing machines, refrigerators, cars, etc.).

I publicly announced in late 2022 that there would be no economic recession in the first half of 2023, even though all of Wall Street was calling for a recession. The main thing to keep in mind is that the launch of IRA will continue to have the biggest boost to economic growth in 2023. Moreover, this wave of production, employment and consumption drivers will continue for at least some time, so it is not time to predict a recession now.

4. How will US stocks perform in the second half of the year? Will the stronger sectors continue to rise? And any other areas will have more space for bullish?

For the next half of 2023. I think the core of the medium- to long-term performance of a stock depends on its fundamentals.

From today's perspective, the fundamentals of companies such as $NVIDIA Corp(NVDA)$ and $Microsoft(MSFT)$ in the AI sector are still rising strongly, and the companies' revenue gains are still expandable. So from an earnings growth perspective, these stocks are indeed still worth buying.

Of course, investors should also consider whether the stocks are overvalued. Although the electric vehicle sector, such as $Tesla Motors(TSLA)$ , has also experienced a relatively significant correction recently, investors are digesting the second-quarter earnings situation again. Nevertheless, some other electric car companies are gradually releasing data, which is a good time to review and evaluate the stock.

But overall it is difficult to see that the U.S. stock market will plummet because its earnings growth is still very strong.

Some expecting bullish areas:

• Oversold biotech, bio-engineering, and healthcare-related stocks: The entire biotech sector had experienced a very painful bear market over the past two years, with individual stocks down 80% - 90%. Fortunately, there have been a lot of breakthroughs recently in cancer treatment, gene diagnosis, and treatment, cell therapy, Alzheimer's disease, cardiovascular disease, liver cell therapy, etc. Once these companies make new discoveries in their medicines, they will definitely perform well. Recently, we have also seen that some large pharmaceutical companies in the United States are beginning to acquire some small and medium-sized biotechnology companies. On the whole, in the second half of the year, I think the pharmaceutical field has significant room for growth.

• Fin-tech field: In early August, $Life Settlements was the "only newly listed life insurance company" in the United States in the past 30 to 40 years. The listing of this insurance technology company also represents a new financial technology-related investment opportunity in the past two years-the payment field. In addition to insurance technology, SaaS companies that provide services, data, and insurance exchanges to insurance companies also have good opportunities and deserve investors' attention.

• Medical care and technology empower REITs: If the Federal Reserve stops raising interest rates or starts cutting interest rates, REITs is an industry that will benefit very, very much, because US laws require REITs to pay no taxes themselves, but they need to distribute more than 90% of their profits to investors. Among the REITs, I think one of the most noteworthy is the medical REITs, and the other is the data center REITs, especially the REITs that combine technology and use artificial intelligence in this industry, which deserves some careful research and attention.