Original title: US stocks experienced “Black Monday”, whether they will continue to plummet from there to find hints
On Monday (September 20), the S&P 500 index just closed on the worst day since May. The US stock market recorded its biggest decline in about four months. Investors' expectations of the Federal Reserve's reduction triggered a sharp decline in global stock markets.
The S&P 500 index fell 2.9% intraday, the biggest one-day decline since October 2020. The closing decline narrowed to 1.7%. Traders bought on dips again after the index rebounded from the closely watched moving average.
Bianco Research President Bianco said that the next trend in the market will return to a central theme: interest rates. We are currently watching the US Treasury bond market to find evidence to determine whether this sell-off will worsen or is it just a temporary phenomenon.
He believes that if there is such a pullback and interest rates remain sticky, it may even show an upward trend, I think this would be a danger signal for investors. If the bond market behaves as you'd expect, with interest rates falling as stock prices fall in the next few days, then I think you'll be relieved because we may be entering a period of capitulation.
He added that the decline in bond yields suggests investors are turning to high-quality purchases, which means that at a time when the S&P 500 index falls, investors are flocking to bonds rather than the stock market. When the yield on 10-year US Treasury bonds falls to around 1.25%, it will give people a sense of relief.
On the other hand, if 10-year Treasury yields rise to 1.38% or higher, he thinks this means investors are concerned about “continued inflation,” and the Federal Reserve is forced to act at a faster pace than many expected. Fears that the Federal Reserve will reduce the size of debt purchases have haunted Wall Street, even though the stock market has climbed to record highs.
US Treasury bonds continued their overnight gains during the US trading session on Monday, with yields close to intraday lows at the end of the session. Traders turn to hedging mode. Long-term US Treasury bonds led the way, and the yield curve reached August 2020.
Long-term treasury bonds may begin to receive additional support from month-end capital flows this week and next month. US treasury bonds outperformed European treasury bonds, and German and British treasury bonds rose 2 basis points and 1 basis point respectively. Long-term swap spreads narrowed by 1.2 basis points, indicating that the flow of income capital is supporting US Treasury bonds. As of 3 p.m. EST, the trading volume of US Treasury bond futures was roughly in line with the 10-day average. Long-term bond contract trading was the most active, 13% higher than the normal level.
The US interest rate strategist lists in the weekly report the various reactions that the market may have to the results of the US Federal Open Market Committee (FOMC) decision on September 22.Bank of AmericaIt favors hedging against the risk of falling interest rates,Goldman SachsTactical shorting of short-term bonds is recommended. US debt bears are looking forward to a tiebreaker week, focusing on the Fed's downsizing signal and the possibility that the bitmap will unexpectedly turn hawkish.
Although the Federal Reserve insists that the rise in inflation is temporary, Bianco sees signs that inflation may last longer. For example, if components of the consumer price index, such as airline tickets and restaurants, were not reopened, inflation would look much higher. Excluding everything that has been reopened, you still have an inflation rate of about 3.5%, which is also too high for the Federal Reserve. If the market starts to believe that the inflation rate will stay around 3%, it may be a little higher or a little lower. This is unacceptable for 10-year treasury bonds with a yield of 1.3%, and may cause real problems for the bond market.
The Federal Reserve may give an “advance notice” on reducing the scale of debt purchases before the end of the year
At this week's meeting, the FOMC may give an “advance notice” on reducing the scale of debt purchases before the end of the year. Rabobank expects the code reduction to be officially announced in November and officially launched in December. Powell may also provide a preliminary drawdown schedule, which the bank expects to complete by the end of 2022.
The economic forecast will be extended to 2024, which means that the bitmap will include economic expectations until 2024. Meanwhile, the bitmap is likely increasingly inclined to start raising interest rates for the first time before the end of 2022. Although Powell may repeat his arguments and explain why inflation is “temporary,” inflation expectations will tell us how long the FOMC's “temporary” judgment will last. Powell may repeat that the end of debt reduction does not mean the beginning of interest rate hikes.