On Thursday, US stocks continued to rebound strongly, aided by two important figures, the number of jobless claims at the beginning of the week and retail sales in July. The three major indices rebounded sharply on the trading day after the data was released, and both the S&P and NASDAQ closed higher on 4 trading days this week.

The recent rebound in US stocks from a low level is due to signs of recovery from economic data, which revived expectations of a “soft landing” in the market; Walmart's strong earnings report punched “weak consumption,” which also alleviated concerns about the recession. However, after selling off the tide and low valuation of US stocks, various forces are taking advantage of the low absorption, and huge amounts of capital such as hedge funds, quantitative purchases, and corporate repurchases are returning to the market. Has this major retracement in US stocks come to an end? What should I pay attention to next?

Huge amounts of capital are pouring in again, and the US stock adjustment has “come to an end”?

After the Japanese yen arbitrage transaction closed and recessionary pressure was released, US stocks quickly rebounded, and the VIX panic index quickly fell after hitting a high point, and the market calmed down again. What signals were sent behind this phenomenon?

Goldman Sachs and Barclays agree that the sharp sell-off in the market last week may be related to quantitative funds that follow the trend; these systemic funds trade based on market signals and volatility, not on company fundamentals. When the VIX Index surged last week, it triggered a massive sell-off of volatility-control funds, and their share allocation ratio fell from 110% to about 50%. As VIX returns to pre-sell-off levels, it is expected that these funds will gradually return to the market.

The liquidity of these quantitative purchases is also huge. According to data from Nomura Securities International, if the S&P 500 index fluctuates 0.5% daily over the next month, these funds will buy about $59 billion of stocks every month.

In addition to this, two other forces have also quietly “bottomed out” in this wave of sell-offs — hedge funds and corporate repurchases. Institutional data shows that after arbitrage trading caused a storm of liquidation, the Bank of Japan abandoned interest rate hikes, the yen depreciated by more than 5% against the US dollar, hedge funds rebuilt their positions, and arbitrage trading is making a comeback.

According to ATFX Global Markets data, short yen positions have increased by around 30%-40% in the past week, with a large portion coming from hedge funds and high-net-worth clients. Professional analysis indicates that if the Bank of Japan remains on hold, then the temptation to re-engage in arbitrage trading is bound to increase.

Coinciding with the end of the second-quarter earnings season, the corporate stock repurchase window is also opening. Goldman Sachs expects that if the company follows the historical pattern of August and September accounting for about 21% of total annual repurchases, then the daily purchasing power over the next few weeks will be equivalent to 4.75 billion US dollars.

What do we need to focus on next?

In the short term, there are still many events that may cause fluctuations in US stocks. First, the annual Jackson Hole Annual Meeting will be held next week. Powell will deliver a keynote address at the Jackson Hole Annual Meeting at 10 a.m. EST on August 23 (August 23 at 10 p.m. Beijing time).

Second, August 28 will soon welcome Nvidia's earnings report, which the entire market is paying close attention to. Previously, strong sell-off drastically reduced Nvidia's valuation. Currently, the stock price is about 36 times the expected earnings, down from 44 times that of June, which has attracted many investors to buy on dips. Currently, as technical pressure gradually eases, the market will begin to refocus on fundamental narratives, and Nvidia's influence on US stocks is unique, and the performance of this latest performance will greatly influence the rise and fall of the market.

According to data provider Marketchameleon, as of press release, the options market is betting that Nvidia's stock price fluctuation after the results are released will reach ± 12.4%, which is higher than the average fluctuation over the past performance date. In the previous 12 quarters, the probability that Nvidia's results would close on a daily basis was as high as 75%.

Finally, as November draws closer, the US election is bound to be even more anxious. Currently, Harris, representing the Democratic Party, has “taken the lead,” overtaking Trump in the polls. If the election situation becomes more variable, investors tend to be cautious, and they may choose to leave the market and wait.

The long-term trend of US stocks is still more dependent on economic growth. Under the trend of interest rate cuts, US economic inflation is gradually cooling down and interest rates are falling. The focus on economic issues has changed from “whether inflation is too high” to “whether there will be a recession.” Komo analysts then published the following findings:

“The stock market is no longer a one-sided upward trend, but is increasingly playing a two-way game around downside economic risks, Fed policy timing, position congestion, high valuations, and growing electoral and geopolitical uncertainty. The market focused mainly on inflation trends in the first half of the year, but the focus in the second half of the year was rapidly shifting to growth risks...

We believe that the current market correction is mainly driven by concerns about slowing economic growth and repricing the probability of a recession.

Is the current round of US stock adjustments over?

Which event will cause major fluctuations next?

What layout opportunities are you most optimistic about?

Niu friends are welcome to leave comments to discuss in the comment area~

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