Stopping rate hike is a terrible thing

Last week, the Fed's interest rate meeting continued to rate hike by 25 basis points without suspense, and the market also thought it was the last rate hike of the Fed in this round without suspense. When to cut interest rates has become a topic of discussion among analysts.

Looking at the past interest rate increase and reduction cycle of the Federal Reserve, the time span from suspending the rate hike to starting to cut interest rates is about 10 months on average. According to the past law, that is, early next year, it is the time point for the Federal Reserve to cut interest rates.

However, at present, the market obviously doesn't think so. The market believes that the earliest time for the Federal Reserve to cut interest rates will be the interest rate meeting in July this year, which greatly advances the time point for cutting interest rates. The main reason for this expectation lies in Powell's speech, and the chairman of the Federal Reserve clearly expressed concern about the impact of the US debt ceiling negotiations on the uncertainty of the US economy. US Treasury Secretary Yellen said that the United States will reach the debt ceiling as early as June 1, when if the two parties fail to reach a bill to raise the ceiling, the government will stop and accelerate the economic recession.

What is the impact of this on the US stock index?

Since the beginning of this year, U.S. stocks (Standard & Poor's) have been fluctuating in the range of 3800-4200, and the trend has shown the entanglement of future economic judgment, neither optimistic nor declining.

Although the market has been singing bad that the United States will enter an economic recession cycle, every time the non-farm data has been strong, there is no sign of when to decline at all. The market needs a definite signal to break the current balance, and the interest rate cut will be the most obvious signal. With the current economic recession, the Federal Reserve can completely avoid cutting interest rates or even continue the rate hike. As long as the CPI and core CPI data are maintained this week, the interest rate can still remain high, and there is no need to cut interest rates to save the market.

Once the interest rate is cut too early to save the market, it actually signals to the market that the US economy will enter recession, and once the recession worries are settled, the market will price the stock market in recession mode. Economists expect corporate profits and P/E to fall by 20% in the US recession, which is certainly overvalued at present.

As for the investment strategy of US stocks, with the passage of time, many bad news keeps fermenting, but it has not been completely solved (such as banking crisis, debt ceiling, etc.). Risks are constantly being released, and even if bad things are solved, it will take time. Therefore, under the market expectation of limited growth rate and accelerated decline rate (the current US stock option market is indeed priced in this way, and call options are cheaper than put options, which shows the market mentality), the US stock index will still have a scary trend of rapid decline, so don't be attacked by one or two big positive lines. Sell in may and run, it is the safest way to bargain-hunting, even if it is a phased purchase.

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