Although analysts from Morgan Stanley and Citigroup expect that the US stock market has bottomed out, Deutsche Bank warns that the S&P 500 Index may drop another 7.5%; Chada believes that the key to saving the current US stock market lies in whether President Trump will change his stance and take measures to reduce the uncertainty related to tariffs.
Since the US stock market fell into a technical correction range last Thursday, the S&P 500 Index has risen for two consecutive trading days on Friday and this Monday, seemingly showing signs of a bottoming out. Analysts from Morgan Stanley and Citigroup also recently published research reports stating that they expect the US stock market has bottomed out.
However, bearish voices are still heard on Wall Street. On Monday Eastern Time, Deutsche Bank warned that the sell-off in the USA stock market is not over, and the S&P 500 Index may drop another 7.5%.
Is the decline in the US stock market not over yet?
On Monday Eastern Time, Binky Chadha, Chief Strategist at Deutsche Bank, wrote in a report to clients, "We believe that the sell-off in the US stock market will continue... Due to uncertainties in trade policy, which could continue to exert pressure, we expect positions to be continued to be cleared at least before April 2."
Chadha expects that the bottom of the S&P 500 Index in this round of decline may be at 5250 points, which means it could drop another 7.5% compared to the closing price of 5675.12 points on March 17.
He stated that although the S&P 500 Index has fallen 10% from its previous peak, indicating that the upward momentum of Large Cap Stocks in the USA is weakening, "the broader economic slowdown caused by Trade uncertainty has not been fully reflected in the prices."
Meanwhile, despite the recent rise in the "fear index" VIX Index, which reflects stock volatility, it has not reached extreme levels, indicating that it may have further room to rise.
Concerns about the USA economy are unlikely to ease in the short term.
Chadha believes that the weak fundamentals of the USA economy, declining consumer and business confidence, and decreasing willingness for capital expenditures are some of the reasons for the economic downturn in the USA. In this context, the GDP growth rate expectations for the first quarter in the USA and the stock market may be further downgraded.
Chadha also believes that whether it's the market's concerns about the slowdown of the USA economy or the escalating uncertainty related to Trump's tariffs, these concerns are unlikely to ease in the coming weeks (or even months). These worries will continue to pressure the USA stock market in the short term.
Chadha also pointed out that the just-concluded Earnings Reports season indicates that USA corporate CEOs are also very worried, thus they have already cut capital expenditures and earnings expectations. This may continue to suppress corporate earnings performance in the future.
The key to solving the problem is Trump.
In Chadha's view, saving the current USA stock market hinges on one person—President Trump.
Analysts at Deutsche Bank have stated that if Trump's approval rating drops significantly in the short term, it could prompt the Trump administration to change its stance and take measures to reduce uncertainty related to tariffs. If this happens, the growth cycle of the USA economy will be able to continue.
In this case, the (USA) stock market may rebound strongly, returning to a longer-term upward trend channel, similar to how it did after the 'Phase One Agreement' in 2019. Therefore, although there are increased risks in the US stock market, we still maintain our target level of 7,000 points for the S&P 500 Index by the end of the year.
However, he added that despite Wall Street's worries, polls show that Trump's current public approval rating is still quite high. Therefore, before Trump's political support rating drops significantly, any 'Trump Put'—the assumption that a market downturn forces the Trump administration to adjust its policies—is unlikely to materialize.
This article is reprinted from "Cailian Press", edited by Zhitong Finance: Chen Xiaoyi.
Today, after hitting the high near 24,000 in the early session and entering bearish positions, the index fell sharply by nearly over 600 points, immediately recouping yesterday's losses significantly.
Moreover, today it broke the new high again, reaching a maximum of 24,076, but by the end of the market, it fell back by about 70 points, producing a bearish candle. The current trend has not yet been broken, but from the previous low until now, it has risen close to 6,000 points. It is believed that those with positions can continue to hold until there is a clear trend reversal for profit-taking. Those without positions can wait for a pullback to get in. Actually, it is hoped for a quick pullback, as it allows for entry and also provides a healthy breath.
Currently, the outlook remains the same as before. It is believed that even if there is a pullback, it shouldn't be too deep. However, if Futures fail to stabilize and close below 22,350, there may still be room for decline. The chance of Futures falling below 21,400 in the short term should be low, so it is considered that if a significant pullback occurs, it presents a good opportunity to incrementally go long. Recently, there has been a consistent approach to not hold positions overnight, only focusing on immediate trades, as there is no high chasing and no casual short selling.
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