This article is from WeChat official account:Tencent Technology (ID: qqtech)< span class = "text-remarks">, author: Ji Zhenyu, from the title figure: vision China

Nasdaq crashed 4% at the opening, Tesla plunged 13%, and heavyweight stocks such as Apple, Microsoft, and Google were all spared……The U.S. stock market opened on the 23rd and showed a doomsday scene. Investors’ memory instantly returned to nearly a year ago: Under the unprecedented outbreak of the epidemic in the United States, U.S. stocks experienced multiple rounds of fuse, and the previous prosperous bull market was instantly wiped out.

However, the market rose strongly in the afternoon, and the heavyweight stocks basically recovered their lost ground, pushing the three major stock indexes collectively higher, and finally came out of a shocking reversal of the market. As of the close of the day, the Nasdaq Composite Index fell only 0.5%, the Dow Jones Industrial Average rose 0.05%, and the S&P 500 index rose 0.12%.

Just as the main core factor that dominated the U.S. stock market crash last year and followed by a strong recovery was the new crown epidemic, this year the U.S. stock market is still dominated by this factor. The recent market trends are no exception: investors expect the epidemic to improve, economic recovery, rising inflation, and the Federal Reserve to tighten currency. Based on this logic, investors began to withdraw from technology stocks that had risen to historical highs in the previous period, and turned to value companies that were suppressed by the epidemic in the previous period and are expected to recover after the epidemic improves.

But the actual situation is that the current new crown epidemic in the United States has not substantially improved, and despite the continuous mutation of the virus and insufficient vaccine supply, the future still faces many uncertainties. This has led to a series of improvements based on the epidemic. The logic seems untenable. On the 23rd, Fed Chairman Powell also repeatedly clarified the Fed’s position at the congressional hearing: There is still a high degree of uncertainty in the economic recovery, and the loose monetary policy will not be significantly adjusted before then.

The phenomenon of premature and overreaction in the market is understandable. The market went from a flash crash to a strong pull up that day, which also reflects to a certain extent that the market is still adjusting expectations. In the medium and long term, based on the Fed’s judgment that inflation is still at a moderate level and its commitment to maintaining loose monetary policy, including the basic logic of supporting the rise of the technology industry last year, there has been no fundamental change. The stock market crash will not be a high probability event.

The technology sector fell across the board, and value stocks rebounded

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When Fed Chairman Powell testified before Congress on the 23rd, he partially responded to the current market’s concerns about inflation. He said that the current level of inflation in the United States is still moderate, and the prospects for economic recovery remain “highly uncertain.” His statement partly dispelled the market’s worries that the Fed might change the direction of future monetary policy.

Peter Boockvar, chief investment officer of Bleakley Advisory Group, believes that Powell’s speech that day is still “dovish”, which reflects that the Fed maintains loose monetary policy at least for the foreseeable future. He said that the Fed is still concerned about the recovery of employment levels. Therefore, we are willing to tolerate higher levels of inflation and ensure the stability of financial markets.

Although the intention expressed in Powell’s speech was clear, the market did not stop its decline. After a short rebound, the Nasdaq Composite Index continued to fall sharply.

Currently, the increase in U.S. Treasury yields caused by inflation expectations is the main factor in the market for investors to sell technology stocks. After nearly a year of strong rise last year, the stock prices of many technology companies are hovering at historic levels. High, so it is also the most sensitive object to market wind direction changes. When investors predict that the market wind direction may change, technology stocks that have made considerable gains will become the first to sell, and funds are returned from the technology sector to economic fundamentals. The trend of the value sector has been particularly evident in the recent past.

Valuation reconstruction or periodic callback

In the current market stage, investors seem to have reached a certain consensus on the imminent economic recovery, rising inflation, and the Fed will accelerate the tightening of loose monetary policy, etc., and have implemented this consensus in their investment behavior: technology stocks have substantially Declining, traditional value stocks began to heat up. But whether this logic holds up in the future still needs more in-depth analysis.

First of all, regarding the factors of the epidemic, this is almost the core logic that dominated the trend of US stocks for the whole year. As the U.S. epidemic has not shown any signs of improvement throughout 2020, investors are not worried about the Fed’s easy monetary policy. The huge liquidity has driven the market higher, and the ways of working at home and online communication have made people feel comfortable. Generally optimistic about technology companies, making many companies in this sector have historically high valuations.

It is foreseeable that epidemic factors will continue to be the main tone in determining the trend of U.S. stocks in 2021. Changes in the trend of the epidemic will lead to a series of changes in the following, including people’s socialEconomic activities, government policy decisions, etc., although the recent US epidemic has shown signs of improvement, more than 60,000 new cases per day can still be described as serious. Coupled with the continuous occurrence of virus mutations, the future progress of the US epidemic There is still a lot of uncertainty. Under this uncertainty, the speed and intensity of the economic recovery may not be as good as investors’ expectations. Therefore, the Fed is unlikely to make significant adjustments to the current loose monetary policy measures.

This is actually what Fed Chairman Powell repeatedly emphasized at the Congressional hearing on the 23rd: There is great uncertainty in economic recovery, so the Fed has no intention of making policy changes eagerly.

As for the immediate factors that have recently caused investors to flee technology stocks and switch to value stocks: U.S. bond yields have risen, the market has also overreacted to a certain extent. Paul Jackson, Director of Global Asset Allocation Research at Invesco, believes that higher yields will naturally make investors re-examine equity assets, but the current yield level is still far from the level of real trouble.

Although U.S. Treasury yields have continued to rise this year, they are still lower than the level of last year before the epidemic broke out in the United States. What really needs to worry about is the rate at which yields are rising, not the current level.

Scott Thiel, BlackRock’s chief fixed-income strategist, believes that many of the epidemic-related trends that formed last year will continue in the future. For example, the trend from offline to online will continue in the long run. He suggested that while following this trend, investors should also pay attention to some cyclical and global trade-related sectors. These related industries will obviously benefit after the epidemic eases.

This article is from WeChat official account:Tencent Technology (ID: qqtech)< span class = "text-remarks">, author: Jizhen Yu