Huitong Network News--Since Trump's election, the Dow has hit a new high every four trading days. There has been no correction of more than 10 per cent in nearly 350 days. But analysts believe that U. S. stocks have reached the "cliff edge" and there are three main reasons why they will plummet this fall.
Since Trump's election, the Dow has hit a new high every four trading days. According to NedDavisResearch, the s & p has not seen a correction of more than 10 per cent in the last 350 days, while it has not fallen by more than 20 per cent in nearly 2100 days. But analysts believe that U. S. stocks have reached the "cliff edge" and there are three main reasons why they will plummet this fall.
Reason 1: the U.S. government budget and debt ceiling
Congress needs to make progress on raising the debt ceiling and how to fund the government by September 30 after a two-week recess in August. U.S. government debt will reach an absolute ceiling in mid-October, and the government will face a shutdown if the debt problem is not resolved.
White House Budget Office Director Marvani wants to add spending reforms to the debt limit bill. But Treasury Secretary Nuchin wants to pass a "clean" bill. If Nuchin's bill is passed, the focus this time will shift to the appropriation bill that will fund the coming fiscal year. Failure to make progress on these measures could lead to a government shutdown, which could deadlock markets and Mr Trump's tax reform agenda.
Second, the European Central Bank reduces the size of QE.
ECB President Jean-Claude Draghi said at the end of June that deflationary pressures had been replaced by the power of reflation. The simple statement hinted that the ECB would announce a reduction in the size of QE on Sept. 7, sending global bond yields soaring. German 10-year bond yields are still about 150bp below the ECB's inflation target and below the implied nominal GDP350.
This means that when Mr Draghi actually starts withdrawing large acquisitions from the European bond market, yields should suddenly soar and appear in a compelling way, regardless of the state of the economy. European excessesleverThe rapidly rising borrowing costs of a chemical economy will cause investors to worry about future growth prospects and allow high-frequency leaders to immediately rush to find narrow exports.
Third, the Fed's tightening of monetary policy
Most investors do not understand that the Fed has been tightening since it began to scale back its $85 billion-a-month asset purchase program in December 2013.monetary policy. It is now widely expected that the Fed may announce a reduction in its balance sheet at its FOMC meeting in September. This means that the Fed will start selling 4.5 trillion dollars worth of goods from the fourth quarter.Us treasury bondsAnd half of MBS's assets. The problem is that as the economy weakens, central banks around the world are tightening.MoneyPolicy.
For example, since 2010, the United StatesGDPThe average is 2%, but it fell to 1.6% in 2016 and only 1.4% in 2017. This kind of extraNational debtSupply, coupled with a soaring deficit (up 31% from a year earlier), could cause bond prices to plummet. Will pushBondYields are further higher.
YesEuropean Central BankAnd the expectation that the Fed will act this autumn is the main reason for the market's belief in the possibility of a sharp correction in the stock market in the coming months. Debt service has increased by 60 trillion since 2008dollarThis may be the catalyst for market sentiment to shift from greed to panic.
In addition, according to Citigroup Inc (Citigroup), New YorkSecuritiesOf the exchange.Security depositDebt balances are at record levels, while institutional investors have only 2.25 per cent of their cash portfolios, the lowest level since the start of the Great Recession.
Since Trump's election, the Dow has hit a new high every four trading days. According to NedDavisResearch, the s & p has not seen a correction of more than 10 per cent in the last 350 days, while it has not fallen by more than 20 per cent in nearly 2100 days. The average number of days without such a pullback in history is 167 and 635, respectively. It can be said that the overvaluation of the US stock market is extremely dangerous!
The upcoming correction not only starts with the second highest valuation in history, but alsoFederal ReserveAnd the balance sheets of the Ministry of Finance have been severely damaged. Therefore, analysts believe thatUs stocksThe belated correction is likely to be more than 20%.