To The Moon

A 2%+ means reverse of just dead cat bounce?

Three major indices jumped 2%+ on June 21st, $DJIA(.DJI)$$NASDAQ(.IXIC)$$S&P 500(.SPX)$ and collapsed 2% on Futures trading on June 22. It is not the first time

This quarter, more than six time that S&P 500 index rose more than 2% and followed by an at least 2.5% decline on next day...

Magnitude of 4th squeeze in 02 and 08 bear vintages also showed a  21% and 19% rebounce respectively.

Of course, there is an important reason for the continuous pessimism in the market this quarter

The declining corporate earnings. During the recession, EPS contractions ramp up to 14%.

According to Bloomberg's recent market consensus, after Q1 earnings, the overall EPS expectation (Q2) of S&P 500 companies dropped by more than 2%, which is quite rare.

At present, the EPS expectation of SP500 (TTM to 2022Q2),It has dropped from the consensus of$239 to $206, According to the price-earnings ratio (14-15 times) during the subprime mortgage crisis in 2008, the S&P 500 index should be in the range of 2900-3100.

If the current rate is 19 times, it will be around 3900.

Of course, there are also optimistic ones, such as $Deutsche Bank AG(DB)$$DEUTSCHE BANK AG(0H7D.UK)$It is estimated that the EPS in 2022 will be $227, so at the current P/E ratio of 19 times, the S&P 500 can reach 4,300 points.

Another problem is Japan.

Unlike the United States, Japan will continue QE, Monetary policy tweaks would make sense but only offer some temporary relief for the yen: yield curve control has tied the currency tightly to the mast of US Treasury yields

Abenomics lives on: the authorities still welcome the boost to both profits and prices from orderly yen depreciation, leaving the fiscal channel to deal with the adverse impact on demand from imported inflation

The yen has fallen to a 24-year low against the dollar. Generally speaking, the impact of inflation is temporary, and easing policies should still firmly support the economy.

But then again, Japan has a more stable economy and a more stable international trade structure than the United States and Europe. Although Japan's inflation in April also reached the highest point since 2008, it only exceeded 2%, compared to 8%+ in Europe and America.

Sustained yen declines keep the pressure on Beijing to weaken the CNY, fuelling further USD strength and reinforcing the squeeze on asset prices from the pincer movement between a hawkish Fed and slowing world growth

$Invesco CurrencyShares Japanese Yen Trust(FXY)$