Negative factors such as the escalating conflict between Russia and Ukraine, soaring energy prices and the recent "hawk" of Fed officials may be testing the determination of investors who prefer a bargain-hunting strategy to remain bullish, but some analysts believe that despite the recent bad news, investors who are bullish on US stocks have not been defeated.

Zhitong Financial APP has learned that while US inflation data this week reached the highest level in 40 years, there are also clear signs of a rebound in US stocks, including Wednesday's rebound, which pushed the S & P 500 to its biggest gain since last month, against a backdrop of higher-than-expected gains in US CPI and PPI, enough to show that bargain buying is still strong. Two-year Treasury yields fell in three of the four trading days this week, while industrial stocks remained strong and the benchmark volatility index remained unchanged.

At a time when the Fed is due to make a new policy decision on May 4, Fed officials "poured out" to make frequent hawkish remarks. CEO Michael Shaoul, the Marketfield asset manager, says the market has even begun to forecast inflation at an "absurd level", but he believes inflation has long been incorporated into asset prices by traders.

"We are not surprised by the data released and the market reaction," Michael Shaoul said in a report. Most investors and investment advisers may agree that they have made significant adjustments to their expectations in recent weeks, so there is no need to overreact. "

In the past four trading days, the s & p 500 is down more than 2% for the second week in a row, the Dow is down 0.8%, and the NASDAQ 100 is down 3%. But the Chicago Board options Exchange VIX index rose slightly to 22.7, and the U. S. stock market was closed today for a holiday.

Pessimistic expectations gradually fall to the ground

Inflation data is one of the important data before the Fed interest rate meeting. Data released on Tuesday showed that US CPI rose again in March at its biggest rise since 1981, raising expectations of a sharp rise in interest rates by the Fed. In the hours after that, U. S. stocks continued to rise as core data excluding food and energy were lower than expected. Yields on 2-year Treasuries, which are sensitive to monetary policy and inflation expectations, fell sharply after the report.

Meanwhile, the price paid to US producers in March, the PPI index, also rose from a year earlier, exceeding market expectations, the government said on Wednesday. But stocks continued to rise and short-term Treasury yields fell again, mainly because most investors still held the view that inflation had peaked.

Yesterday, the US March "terror data" (monthly retail sales rate) was lower than expected, recording 0.5 per cent, lower than the expected 0.6 per cent, with the previous value revised to 0.8 per cent from 0.3 per cent. But some research data released by Bank of America Corporation on Wednesday show that US consumer spending on credit and debit cards rose 15 per cent year-on-year in the year to 2022, suggesting that Americans are not spending less because of high inflation. After the data, the CBOE VIX index rose slightly to 22.7, its lowest level in a week, by yesterday's close.

"if I had told you in advance that CPI and PPI would have exceeded expectations for months and reached levels not seen in decades, would you still expect US bond yields to fall sharply and stocks to rise? Steve Sosnick, chief strategist at Interactive Brokers LLC, said.

To be sure, not everyone thinks the newly released data will lower their expectations, and some Wall Street analysts warn clients not to be fooled by the weak data.

Cycle force, rebound is just around the corner?

Bank of America economists led by Ethan Harris said in a report: "it is wrong to focus on traditional core inflation indicators that do not include food and energy. The problem with this approach is that based on the data you get, you can get almost any number you want. "

John Lynch, chief investment officer of Comerica Wealth Management, said the two main drivers of the stock market over the past few years, the Fed's backing for the market and the low CPI, are now becoming important roles that will eventually depress profit margins and valuations.

"persistent inflationary pressures are likely to continue to dampen investor confidence," Lynch said in a report. "We continue to favor value and cyclical sectors and believe that as companies and investors adapt to these changes, more proactive strategies will prevail over passive strategies. "

What the "bargain buying" group has done over the past week has been to support cyclical stocks, pouring billions of dollars into ETF, which focuses on semiconductor stocks, betting that the semiconductor industry will continue to recover from supply chain disruptions and core shortages. Material producers and industrial stocks led the gains.

Statistics compiled by Bloomberg show that semiconductor ETF has about $1.7 billion in inflows. Funds focused on semiconductor stocks have raised about $7.8 billion since the start of the year, about as much as in the past two years combined. The inflow of money into the semiconductor industry highlights investors' belief that the industry will continue to recover from the supply chain turmoil that intensified during the COVID-19 epidemic. Generally speaking, the semiconductor industry is a cyclical industry, which usually performs well when the economy is doing well.

Generally speaking, profit growth is one of the most important factors driving up share prices.Judging from the major sectors of US stocks, analysts generally expect profit margins in the energy sector, another big cyclical sector, to rise sharply in the first quarter from a year earlier, while profits in the raw materials industry are also expected to benefit from soaring prices.

Looking back on the first quarter, energy stocks are likely to be the big winners in the US stock market, benefiting from this big dividend from rising global oil prices. Bank of America Corporation said recently that although energy has substantially outperformed the market this year, its valuation is still attractive in the context of high inflation and rising cash yields. As of yesterday, iShares global energy ETF (IXC.US) had risen nearly 37 per cent so far this year.

Other economic reports are more favourable to bullish analysts, including u.s. retail sales, which rose slightly in march as gasoline spending surged 8.9%. Despite the rising prices of goods and services, Americans are still willing to spend, a figure that has given rise to optimism, given the growing calls for a recent recession. Some analysts believe that even if it does occur, the timing of the recession will be difficult to grasp.

"A recession is more likely than a soft landing, but that doesn't mean the market will fall right away," Liz Ann Sonders, chief investment strategist at Charles Schwab Corp, said in a telephone interview. But assuming that the risk of a recession continues to rise rather than fall, we can at least expect more volatility in the market. "

Aneta Markowska, chief economist at Jefferies, monitors a proprietary index of US economic activity made up of restaurant bookings, retail network traffic and traffic data. She said her indicator had risen above the level of a month ago, and Markowska noted that despite the weakness in the housing market, there had been positive developments in consumption levels and capital flows.

"therefore, although the economy appears to be at a standstill, there are signs of continued normalization behind it," she wrote in a report. Consumer activity is still very resilient in the face of rising energy costs. "