[The Epoch Times January 21, 2022]Since the opening of 2022,US stocksThe Dow fell 4.47%, the S&P 500 fell 5.95%, and the Nasdaq fell 9.53%, indicating that investors are worriedFedIn order to fight against inflation, we will take a positive approach to raising interest rates.
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Taking the Nasdaq as an example, it has fallen from a historical peak of 16,212 points in 2021 to 14,154 points on Thursday (20th), a drop of 12.69%. It has already fallen into the correction area of more than 10%. If there is no hope of stopping the decline in the short term, it will gradually decline. 20% bear market territory.
However, Wall Street strategistsUS stocksThe outlook for 2022 isn’t particularly pessimistic, and it’s a big departure from the current vibe. The S&P 500 is up 27% in 2021, ahead of its long-term annual return of 10%. As for 2022, the most pessimistic Morgan Stanley forecast will drop from 4,793 at the end of last year to 4,400 at the end of 2022, a drop of 8.2%. That forecast was just 1.8% below Thursday’s close of 4,482 for the S&P.
Other Wall Street investment banks are relatively cautiously optimistic, believing that U.S. stocks can continue to rise by 5% to 10% in 2022. Wells Fargo estimates the S&P 500 could rise to 5,100 to 5,300 points by the end of 2022, Goldman Sachs and Citigroup both estimate it to rise to 5,100 points, RBC estimates it to rise to 5,050 points, and Credit Suisse believes it can reach 5,200 points. A slightly pessimistic Bank of America estimate was at 4,600, but still 2.6% above its latest close.
Wall Street investment bank experts are not unaware of 2022FedAn aggressive rate hike strategy will be adopted to fight inflation, but they believe corporate earnings will continue to grow even in an environment of rate hikes, providing strong support for the downside in share prices.
S&P 500 earnings will rise 9% in 2022 from a year earlier, according to FactSet, up from a 10-year average of 5%, but significantly lower than 45% in 2021.
The above discussion shows that Wall Street investment banks generally do not believe that 2022 will be the year when the US stock market turns into a bear market, although the stock market performance in 2022 will be far less bright than that in 2021.
Based on historical experience, the last time the Federal Reserve raised interest rates four times in one year was in 2018. The S&P 500 index once fell 10.8% from its peak in February of the same year, but reached a new high after August, and did not drop back by 20% until December. bear market. But then the Fed policy turned loose, and the S&P index continued to hit a new record high in April of the following year.
From mid-2004 to mid-2006, the Federal Reserve also raised the federal base interest rate from around 1% to 5.25%. But the stock market did not crash in those three years, and the S&P 500 rose by 8.99%, 3% and 13.6% respectively.
The above historical data shows that the Fed’s rate hike is not the trigger for the U.S. stock market to fall into a bear market. Instead, empirical data shows that the stock price will continue to record highs after the Fed’s rate hike.
Breaking down the bear market of US stocks in recent years, most of them were caused by the outbreak of unexpected bad news and storms. For example, the U.S. subprime mortgage crisis in 2008 triggered the global financial crisis, and the S&P 500 didn’t really bottom out until March 2009, when the stock price halved, and it wasn’t until 2013 that the economy really recovered and the stock price hit a high.
In March 2020, the S&P tumbled 35% in just two months, setting the fastest rate of decline in history, falling into a bear market. This mainly reflects the sudden and large-scale outbreak of the epidemic in Europe and the United States, causing investors to generally despair and scramble for anything that can be realized. financial assets.
The two largest bear markets in the U.S. stock market in recent years show that the emergence of a bear market must have a clear trigger factor.
The author believes that the US stock market has overreacted to the Fed’s active interest rate hike since the opening of the market in 2022, but it has unilaterally ignored the other side of the continued bullishness of the economy and corporate profits. At this time, the Fed has not really raised interest rates. If the stock market has already fallen into a bear market first, resulting in a sharp cooling of the economy and a bottoming out of the unemployment rate, the pressure of public opinion may be inclined to suggest that the Fed should correct its excessive tightening attempt.
Stock market operations take history as a mirror. If the Fed raises interest rates four times in 2018 as a model for 2022, the year-to-date decline in U.S. stocks at least reflects the potential selling pressure and decline of more than 2/3 of the year, and the probability of bottoming in the first quarter of 2022 is based on this. Very high, and there may be a bigger rebound after the second quarter, but the real test will be whether the inflation data is steadily decreasing in the middle of the year.
If inflation can successfully “soft landing”, it is not ruled out that US stocks are likely to refresh historical high prices again in mid-2022; if inflation temperature does not drop, the Fed’s aggressive interest rate hikes will trigger a “hard landing”, and the third and fourth quarters cannot be ruled out The stock market will also experience a shock similar to or even greater than that of January this year.
Responsible editor: Ye Ziwei#
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