Since the pandemic in 2020, the U.S. stock market has shown extraordinary resilience. Even under the impact of high inflation and a rapid interest rate hike cycle, U.S. stocks have maintained a strong performance, even hitting new highs recently under the expectation of interest rate cuts.
The reasons behind this are not as simple as they appear on the surface, but rather the result of a relay of factors.
Souce: CICC Quarterly Foreign Direct Investment into US market
Pillar 1: Leverage, The key role of government fiscal stimulus
During the pandemic, the U.S. government implemented large-scale fiscal stimulus measures, including direct cash subsidies to residents and loan support to the corporate sector.
This not only protected the balance sheets of residents and businesses, but also stimulated consumer spending and real estate investment, thereby enhancing corporate profitability and creating a positive feedback cycle[1]. Although this approach led to negative impacts such as high inflation, overall, the U.S. economy has remained resilient, which is the first round of basis for the bull market in U.S. stocks after the pandemic.
Souce: CICC GDP/Rev and GDP/Debt
Pillar 2: Tech Trend: Generative AI Leading Industry Upgrade
In 2022, under the impact of the Federal Reserve's interest rate hikes and a downturn in the real estate cycle, U.S. stocks once fell into a technical bear market, especially the interest rate-sensitive @Nasdaq index.
However, the breakthrough progress of generative AI technologies such as ChatGPT at the end of 2022 became the main driving force for the resurgence of U.S. stocks. $Apple(AAPL)$ $NVIDIA Corp(NVDA)$ $Tesla Motors(TSLA)$ $Alphabet(GOOG)$ $Microsoft(MSFT)$ $Amazon.com(AMZN)$ $Meta Platforms, Inc.(META)$
The gains in U.S. stocks in 2023 almost entirely came from leading tech stocks, whose performance also provided robust support for this bull market. This tech-driven industry upgrade trend has allowed U.S. stocks to break free from the constraints of the original economic cycle and become a key pillar for the future strength of U.S. stocks.
Souce: CICC Mild Bullish/Accelerating Bullish/Bubble stage
Pillar 3: Global Capital Rebalancing: The Impact of China's Economic Recovery
In addition to the two major pillars mentioned above, the rebalancing of global capital is also an important factor influencing the trend of U.S. stocks. The state of China's economic recovery will determine the degree of the global capital rebalance, which will in turn affect the performance of U.S. stocks.
Currently, interest rate cut transactions are still likely to be the main theme in the short term, while inflation trades may have already run too far.
In summary
U.S. stocks are still expected to maintain a relatively strong performance for some time in the future.
But this requires a new round of fiscal stimulus policies from the government and continuous innovation drive in the technology industry.
At the same time, China's economic recovery process will also become a key variable. If any one of these three pillars encounters problems, the bull market in U.S. stocks may "become dull" or even end prematurely. Therefore, investors need to closely monitor the changes in these key factors and adjust investment strategies in a timely manner.
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