There was another "long-lost" turmoil in the US stock market overnight, with the Nasdaq index, led by technology leaders, adjusting particularly sharply, closing down nearly 5 per cent, the biggest one-day decline since June 11. By contrast, the Dow Jones index, which accounts for more value stocks, fell relatively less (- 2.8%) and the more balanced s & p 500 fell 3.5%.

In terms of other assets, 10-year US debt fell slightly to 0.64%, the dollar index changed little, basically unchanged at around 93, while gold fell slightly.

The sudden sharp fall in US stocks has generally caught the market off guard, but given that the US stock market has continued to rise to record highs since August, especially the strong performance of technology leaders, investors are not completely unprepared for this adjustment to some extent.

So this decline is the beginning of a bigger decline? Or periodic fluctuation consolidation? It is an issue that investors are generally concerned about. In this regard, our comments are as follows for your reference.

• i. Why did the market adjust? It may be more profit-taking after the market continues to rise and obviously overbought, especially in the technology sector.
  

First of all, at the level of events and economic data, we have not observed a very direct catalyst.The overall epidemic in the United States continues to improve, and the first application for unemployment benefits announced yesterday and the August ISM manufacturing PMI announced the day before yesterday are still better than expected, but the market's concern about the protracted second round of fiscal stalemate may be a certain cause.

Secondly, from the performance of all kinds of assets, it does not look like a typical large-scale risk aversion.Although interest rates on US Treasuries fell slightly and VIX rose, gold fell.

Once againLook at a series of liquidity indicators that we trackNor is there a large-scale liquidity squeeze.The US dollar is also basically flat.

Therefore, on the whole, after examining the above factors,The sudden decline in the overnight market may be more likely to be profit-taking after the market continues to rise and is obviously overbought.This is even more evident in technology leaders that have gained more and their positions are crowded. For example, Apple Inc fell 8% overnight, leading the decline of the major technology leaders.

In fact, this situation is not completely without clues. In our weekly report "viewing US stocks from head fund holdings" published on Monday, we suggest that the US stock market is significantly overbought (even more than the high point before the US stock market fell in early February), while short positions have increased.This is not an absolute basis for the medium-term trend, but the short-term may mean that the technical level is expected to overdraft.

In addition, the rise in the US stock market is partly due to the increase in disposable income brought about by government transfer payments.The phenomenon that the market is more retail and personal(Bloomberg estimates that individual transactions contributed about 20 per cent.) it also objectively increases the degree of volatility.

• ii.So this means the beginning of a bigger decline? Or periodic fluctuation consolidation? At present, we tend to be the latter, but it may be accompanied by a certain degree of style switching in the short term.
  

In fact, looking back, the sudden plunge in the US stock market on June 11 is the same as this one, which can be used as a typical reference, except that the worst-hit areas and directions are completely opposite to this one. On June 11, the three major indexes of u.s. stocks fell more than 5%, the s & p 500 fell 5.9%, the Dow Jones index fell nearly 7%, and the NASDAQ fell the least (5.3%).

Before the slump, the market also showed obvious signs of overbuying as we mentioned above, but more overbought areas came from the value and backward sectors represented by the Dow Jones. The background is that after the United States gradually started to resume work in mid-May, optimistic expectations of economic repair prompted this part of the target to quickly rise and significantly outperform growth stocks in mid-late May, until the epidemic picked up again in mid-late June, triggering a decline in the market.

By contrast, this time it has been replaced by technology dragon stocks that have also recently experienced a sustained rise and are overbought.

Judging from the trend after the sudden plunge of US stocks on June 11Although the value sector collapsed due to the subsequent significant escalation of the epidemic and stagnant resumption of work, and the overall market entered a period of consolidation volatility for nearly a month, there was no collapse-like slump, but the style switched back to the growth plate again.。

By contrast, it is not difficult to understand that this decline is more concentrated in technology and growth stocks with concentrated gains and crowded positions, but the overall market is still facing a better environment than at that time.。

As we analyzed in the overseas configuration report "positive factors are still dominant" in September, the current epidemic in the United States continues to improve, but mid-June is the beginning of escalation and recurrence, and the upside risk comes from the subsequent vaccine breakthrough; monetary policy still maintains a loose tone, and the Fed's recent average inflation targeting further anchors this expectation and policy path, and the overall impact is neutral. It is true that the approach of the election may cause some uncertainty and policy variables, but we do not think it will have a systemic impact yet, and the pressure may be reflected more in the run-up to October than now. Trump's recent poll ratings are also rapidly repairing, especially in key states and betting odds.

So to sum up,We believe that the current overseas market will remain an environment dominated by positive factors.(improvement of the epidemic), vaccine progress or fiscal stimulus will further reinforce this expectation, and short-term technology overbuying has brought some fluctuations, especially those that may lead to stages.Style strong and weak switch, but not enough to cause systemic pressure and impact.

• iii. The head concentration and huddling effect of leading technology stocks in the United States.

In the context of the recent record highs of leading technology stocks, investors pay more attention to the driving factors behind them and the head concentration effect. We have also analyzed this in a number of recent reports, such as the "clutch effect" of US stocks from the perspective of head fund positions, the drivers of dismantling US stocks to new highs, and the current leading valuations of US stocks compared with the technology bubble. The specific conclusion is as follows

This round of rally in the US stock market shows that the foundation is too concentrated and the market capitalization is relatively high, such as:

• 1) the gains and declines in the S & P 500 and NASDAQ have continued to decline since August, with only 7.7% and 4.5% of net gains in the past 20 days

• 2) the top 20 companies contributed nearly half of the 56.8% increase at the bottom of the S & P 500 index (~ 25.9 percentage points).

• 3) the market capitalization share of the FAAMNG of the top six companies in the overall market has climbed to 23.7% from 20.8% on March 23, which is significantly higher than the high point of 16% during the technology bubble.

But,The above-mentioned rising basis is too concentrated, which is directly driven by valuation expansion under abundant liquidity, but it is also directly related to the fact that the growth sector is less affected by the epidemic, especially the leading stocks have a stronger ability to resist risks, in other words, it is not completely without fundamental logic support.。

For example, although the share of the leading stock market value is already high, because it is less affected by the epidemic, its income and profit share is also higher, reflecting a stronger ability to resist risks. In fact, although the price increase of some traditional sectors is small, the valuation expansion is greater because of the more serious damage to profits, such as energy, transportation, cars, consumer services and so on.

At the same time, the "hugging" effect of the main institutions of US stocks on the head company is also very obvious.Before the head fund20Only stock holdings account for more than30%And highly convergent.Therefore, in this context, we believe that in the context of follow-up epidemic control and resumption of work repair, if it can continue to move forward.The rise, which had previously focused on the narrower basis of leading growth stocks, is expected to spread to a wider range.