Last week, with the release of heavy economic data in the United States, the market ushered in sharp fluctuations. The economic data was significantly lower than expected, which made the market have a more aggressive expectation for the Federal Reserve to cut interest rates.
Even the Morgan Stanley report believes that there will be an increase of 50 basis points in September and November this year. However, the market has been looking forward to the expectation of interest rate cuts since the end of 2022.
As the saying goes, buy expectations and sell facts. Although the economic data falling short of expectations can increase the speed of interest rate cuts, it will also greatly increase the market's concerns about the U.S. economic recession. The inversion between the 10-year and 2-year U.S. bond yields has also lasted for 2 years. In history, there will be an economic recession within the longest 3 years. Therefore, the logic of the current market trading of the U.S. economic recession is not unexpected, but whether everyone is mentally prepared.
1. When will the U.S. stock index bottom out?
A recession will come. As for what form of recession, there is no consensus in the market. After all, whoever is the president will have very different policies. Then when the fundamentals are unclear, everyone needs to use technical analysis as much as possible to guide trading and investment.
The previous post pointed out that the important support level of the U.S. stock index (S&P) is around 5,300 points, and observe its support performance in August. Then next week will be an important moment to test this price. If it stands firm and rebounds, the short-term stock index will still be considered strong; If it falls below, it is better for everyone to avoid risks as much as possible. It is still unclear what means and level Iran will use to counter Israel.
If the Palestinian-Israeli conflict escalates (involving more countries), then the US stock index may not be able to hold it with peace of mind. (A replica of the trend from August to October last year). In short, everyone should pay attention to this important price of 5300 points.
2. Is recession good for commodities?
Recession is actually good for commodities, but there are prerequisites. The premise is that it is good for commodities that have fallen sharply and are close to the cost price. A recession is different from a crisis. A crisis is a concentrated outbreak of all problems in a short period of time.
Everyone can't have time to think about it. The competition is who sells faster and keeps more cash. Recessions generally last for a time, and price declines are relatively gradual. Moreover, the supply side of commodities near the cost price often feels the pressure in advance and reduces production. Therefore, the price decline is limited.
Moreover, recession means that the government prints money to rescue the market. Once the recession is over, commodities will also rise due to currency depreciation, so recession is not a bad thing for investment.
Then what we need to do is wait for a commodity that falls near the cost price to appear, and then buy and hold it. At present, commodities (except gold and silver) are still on the path of returning to cost prices, so investors should let the bullets fly for a while, and there will soon be commodity investment opportunities similar to those at the end of 2020.
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