To The Moon

I. Performance and Valuation of Global Equity Indices

Data Source: Bloomberg, compiled by Tiger Brokers

II. Key Market Themes

i. U.S. inflation remains elevated, the economy is strong, but the stock market is plummeting—what exactly is the market worried about?

• Last week, the U.S. October inflation data was released. The nominal CPI and core CPI rose by 0.2% and 0.3% month-over-month, respectively, staying consistent with previous increases and meeting market expectations. A closer look reveals that only used car prices saw a notable increase, but given their small weight in the index, the overall impact was minimal. The following day, PPI data also came out as expected, with no surprises.

• In response, Federal Reserve spokesperson Nick indicated that while inflation remains stubborn, it is not significant enough to deter the Fed from continuing rate cuts. The market reacted similarly; when the CPI data was announced, both the S&P 500 $标普500(.SPX)$ and the Nasdaq $纳斯达克(.IXIC)$ briefly surged. However, Fed Chair Jerome Powell poured cold water on this optimism during his Friday speech, stating, "The U.S. economy is doing well, and the Fed doesn’t need to rush into rate cuts." Over the next two days, U.S. stocks declined sharply, sparking a hint of panic in the market.

Data Source: Tiger Brokers

• We believe the Fed's stance was already made clear in the prior FOMC meeting: de-emphasize inflation and focus on the economy. Unless inflation deviates significantly, the Fed is unlikely to overreact. The key takeaway from Powell’s statement should be the first half, with the underlying message being, "Our economy is robust, and we have ample room to maneuver—we won’t be forced into rate cuts." Thus, the current market fears over inflation are likely overblown. The core issue remains the economy and employment.

• However, overly strong economic data is not entirely positive either. U.S. October retail sales data, released last Friday, showed a month-on-month growth of 0.4%, beating market expectations of 0.3%. Moreover, September’s growth was significantly revised upward from 0.4% to 0.8%. This means October’s actual retail increase far exceeded expectations. As a result, concerns emerged that the Fed might pause rate cuts in December, which could be the main driver behind the market’s decline.

Data Source: CME Group, compiled by Tiger Brokers

• Recently, market sentiment has been highly volatile and nuanced. On one hand, strong economic data raises concerns about the Fed pausing rate cuts; at the same time, weaker data fuels fears of a looming recession. On the other hand, while inflation has officially been downplayed, the prospect of Trump’s return to power introduces fresh uncertainties regarding future inflation expectations.

• Peeling back the layers, the fundamental factors driving U.S. stock market trends boil down to two dimensions: earnings and valuations. At present, we believe earnings are likely the dominant factor. Looking further, the market is grappling with three main concerns: weakening economic growth, overheating growth, and rising inflation. Of these, a weakening economy poses the greatest risk. The other two may cause short-term market fluctuations but are unlikely to derail long-term growth in U.S. equities. For investors, this environment may present trading opportunities.

Data Source: Tiger Brokers

Disclaimer

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