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Tesla
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NVIDIA
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Advanced Micro Devices
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Quantum Computing
-- 17.620 From the IT bubble to the 'initial 0.5% rate cut' post-Lehman! Can a soft landing be achieved? What are the promising investment destinations?
The USA has finally entered a rate cut cycle. The rate cut amount is 0.5%."The initial 0.5% rate cut" is the first since the IT bubble and the Lehman shock..
On September 18, when the Federal Reserve Board (FRB) made a substantial rate cut as expected by the market, the S&P500 index rose by 1% immediately after the announcement. However, towards the close, it turned into a selling dominant market sentiment. This was due to Chairman Powell's statement that "50 basis points is not a new pace of rate cuts." Against the backdrop of recession concerns, investors are hoping for continued significant rate cuts. On the next day, September 19, the S&P500 index rebounded by 1.7%, reaching an all-time high. The expectation of avoiding a recession and achieving a soft landing in the U.S. economy became dominant due to the 0.5% "preventive rate cut."
From the trend of the market for 2 days,at present,However,the soft landing scenario is dominantOn the other hand,Concerns about a recession persist.It can be seen that recent employment statistics are weak, and the U.S. economy has experienced a recession after the Federal Reserve made a significant 0.5% rate cut for the first time (in 2001 and 2007), which may also have become a 'trauma.'Check the past rate cut cycles and the situations in 2001 and 2007.In addition,Confirm the investment stance after the 0.5% rate cut and promising investment opportunities.Said.
Why did the Federal Reserve decide to make a significant 0.5% rate cut this time?
Chairman Powell: 'From an economic and risk management perspective.'
The Federal Reserve (FRB) has often implemented a 0.25% initial interest rate cut in the past. Therefore, regarding the magnitude of this interest rate cut, until about one week before the FOMC on September 17-18, the probability of 0.25% was overwhelmingly high. However, as the FOMC approached, with continued 'dovish' comments from Fed watchers and senior US officials, the probability of 0.5% reversed the 0.25% probability. Regarding the decision of 0.5%, Chairman Powell stated, 'From an economic and risk management perspective, the logic for me is clear.'
Chairman Powell: 'From an economic and risk management perspective.'
The Federal Reserve (FRB) has often implemented a 0.25% initial interest rate cut in the past. Therefore, regarding the magnitude of this interest rate cut, until about one week before the FOMC on September 17-18, the probability of 0.25% was overwhelmingly high. However, as the FOMC approached, with continued 'dovish' comments from Fed watchers and senior US officials, the probability of 0.5% reversed the 0.25% probability. Regarding the decision of 0.5%, Chairman Powell stated, 'From an economic and risk management perspective, the logic for me is clear.'
◇FOMC members: Caution over unemployment rate rather than inflation
Regarding this decision, there were 11 in favor and 1 against among FOMC members. Why did the vast majority support the significant 0.5% interest rate cut? One can see a glimpse of this from the evaluation of economic uncertainty and risks by FOMC participants.
Regarding this decision, there were 11 in favor and 1 against among FOMC members. Why did the vast majority support the significant 0.5% interest rate cut? One can see a glimpse of this from the evaluation of economic uncertainty and risks by FOMC participants.
When confirming the evaluation of FOMC participants regarding economic uncertainty and risks, there were notable changes between June and September. At the June meeting, there were many members who were cautious about inflation uncertainty, but this has decreased this time. On the other hand, there has been an increase in members showing more caution towards the unemployment rate.
Regarding the significant interest rate cut this time, the market is interpreting that the US financial authorities have taken proactive measures in response to the uncertainty of the unemployment rate and the economy. Except for certain economic indicators such as the unemployment rate, the US economy remains robust. The view that the significant interest rate cut by the Federal Reserve has increased the possibility of a soft landing is gaining momentum. On the other hand, based on data such as the unemployment rate, there are also suggestions that the Federal Reserve's interest rate cut may be lagging behind. Going forward, it will be necessary to pay attention to the trends in the unemployment rate and employment.
● Past interest rate cut cycles and the S&P500 index
When examining the movements of interest rate cut cycles and the S&P500 index (since 1985), the performance in the first 3 months after the initial rate cut showed an increase 5 times (with varying rates) and a decrease 2 times. Out of the 2 times of decrease, they occurred when a 0.5% rate cut was implemented (in 2001 and 2007), both times the US economy entered a recession in the quarter following the rate cut.
When examining the movements of interest rate cut cycles and the S&P500 index (since 1985), the performance in the first 3 months after the initial rate cut showed an increase 5 times (with varying rates) and a decrease 2 times. Out of the 2 times of decrease, they occurred when a 0.5% rate cut was implemented (in 2001 and 2007), both times the US economy entered a recession in the quarter following the rate cut.
Based on the above, it can be said that the post rate cut stock price performance depends on whether the US economy enters a recession or experiences a soft landing. However, whether or not it entered a recession will not be known until later. If the current main scenario unfolds as a soft landing, the stock price reaction on September 19th will be correct, and the stock market is expected to continue to rise. On the other hand, if the risk of entering a recession increases depending on future economic indicators, there is also a possibility that selling pressure may dominate, as was the case on September 18th.It might be better to take a "cautiously optimistic" stance at the moment. .
Looking back at 2001 and 2007
The Federal Reserve (FRB) implemented an initial rate cut of 0.5% in 2001 and 2007. Given that this time marks the return of the "initial 0.5% rate cut" since then, investors may be haunted by the "trauma" of the burst of the IT bubble and the global financial crisis. Therefore, I decided to briefly review 2001 and 2007 and compare them to the current situation.
The Federal Reserve (FRB) implemented an initial rate cut of 0.5% in 2001 and 2007. Given that this time marks the return of the "initial 0.5% rate cut" since then, investors may be haunted by the "trauma" of the burst of the IT bubble and the global financial crisis. Therefore, I decided to briefly review 2001 and 2007 and compare them to the current situation.
2001: Entered recession after the burst of the IT bubble
In January 2001, the FRB implemented a 0.5% rate cut. Subsequently, both the S&P 500 and Nasdaq 100 indices underwent significant corrections. In the following March, the U.S. entered a recession.
In January 2001, the FRB implemented a 0.5% rate cut. Subsequently, both the S&P 500 and Nasdaq 100 indices underwent significant corrections. In the following March, the U.S. entered a recession.
On the other hand, when looking at the movement of the Nasdaq 100 index and the FF rate (graph above), the collapse of the IT bubble preceded the rate cut start. Against the overheated financial market fueled by the IT boom, the FRB had been continuously raising rates from 1999 to 2000, before the IT bubble burst in 2000. It wasn't until the following year, 2001, that the FRB shifted to rate cuts after the collapse of the IT bubble.
This trend seems a little different from the current situation. This time, the rate hikes from 2022 to 2023 were aimed at confronting inflation. And while the Federal Reserve (FRB) was implementing financial tightening, the Nasdaq 100 index continued to rise. The AI boom was $NVIDIA (NVDA.US)$ This is because the performance of companies led by the company pushed up. The reason the Nasdaq 100 index has shown a slightly corrective tone since July is due to concerns about how long the performance expansion driven by the AI boom will continue. Coincidentally, this coincided with a period when expectations of interest rate cuts intensified and concerns about a recession emerged. While interest rate cuts are generally advantageous for tech stocks, if they are aimed at recession response, they can be disadvantageous for stocks in general.
In 2007, the world faced a financial crisis due to the collapse of the US real estate bubble and the subprime loan issue.
In mid-September 2007, the Federal Reserve implemented a significant 0.5% interest rate cut. At that time, the US real estate bubble collapsed (with housing prices peaking in 2006), leading to the development of the subprime loan problem into a global financial crisis. After the 0.5% rate cut, the Nasdaq 100 index rose for about two weeks but then sharply declined. The following quarter, the US entered a recession.
In mid-September 2007, the Federal Reserve implemented a significant 0.5% interest rate cut. At that time, the US real estate bubble collapsed (with housing prices peaking in 2006), leading to the development of the subprime loan problem into a global financial crisis. After the 0.5% rate cut, the Nasdaq 100 index rose for about two weeks but then sharply declined. The following quarter, the US entered a recession.
This time, it can be said that there is no real estate bubble collapse or subprime loan issue like back then. If there is anything, it might be the backlash of massive fiscal support and stimulus under the pandemic. Current US economic indicators are generally strong, and it seems that the US economy is overcoming the effects of the backlash. However, the rising trend in unemployment rate is somewhat ominous, which cannot be denied. It may be necessary to be cautious about the increasing recession risk depending on future economic indicators.
If you adopt an "optimistic yet cautious" stance, diversified investment may be effective.
Overall, it seems better to take an "optimistic yet cautious" stance currently. Riding on the momentum of the tech stock rebound as seen on September 19 following a soft landing scenario could be beneficial. On the other hand, if your portfolio is overly concentrated in tech stocks, it may be advisable to slightly increase the allocation of bonds benefitting from rate cuts and defensive stocks. Gold tends to rise in a financial easing cycle, and if concerns about recession persist, it could further push up gold prices. In any case, do not forget a cautious approach, and stay vigilant about US economic indicators and overall market trends when trading. Utilizing a "time diversification" method might also be beneficial.
Overall, it seems better to take an "optimistic yet cautious" stance currently. Riding on the momentum of the tech stock rebound as seen on September 19 following a soft landing scenario could be beneficial. On the other hand, if your portfolio is overly concentrated in tech stocks, it may be advisable to slightly increase the allocation of bonds benefitting from rate cuts and defensive stocks. Gold tends to rise in a financial easing cycle, and if concerns about recession persist, it could further push up gold prices. In any case, do not forget a cautious approach, and stay vigilant about US economic indicators and overall market trends when trading. Utilizing a "time diversification" method might also be beneficial.
Created on September 20, 24, Market Analyst Julie
Source: Created by moomoo Securities from Bloomberg
Source: Created by moomoo Securities from Bloomberg
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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大負けネコ(HYPER) : As expected, Mr. Bit Valley Investor,
️
️" from last November, starting with textbook purchases of "Soros stocks and Buffett stocks." I started investing in semiconductor-related stocks around January, and also purchased "NVIDIA, Intel, Microsoft, AMD, Applied Materials, IBM, Google, etc." and made a lot of profit with "N's One Shot."
" observed by the deterioration of employment statistics and manufacturing index since the end of last month.
️" in times of crisis.
️ fund."
️," the ratio of US stocks is about "15 to 30% of the total investment assets (including mutual funds)." Since there is no "NISA growth investment slot" this year, I plan to "buy more US stocks" mainly after January next year.
renewed" are still smoldering, aren't they?
️" in the "end of this year or next year."
️."
The point that individual investors like me, who have experienced past market crashes, are most concerned about is the "recession concerns of the US economy." I have been comparing it with the "recessionary phases" after the two previous "0.50% drastic rate cuts by the FRB."
Because I am a "value stock-oriented" investor, I entered the US market as a "US stock beginner
However, even though it is said that "if this rate cut is 0.50%," the "US economy is strong," I have been constantly concerned and thinking about countermeasures for the "renewed concern about the recession
If the "recession cycle" is viewed from the perspective of "cycle rotation," it would be "public utility, consumer goods, resources and energy," etc., and "gold
Since I started with "value stocks," I also have "diversified investments" in "high dividend and value stocks" such as P&G, 3M, AT&T, Verizon, Coca-Cola, Kraft & Heinz, NWN, AbbVie, NVO Nordics, Medtronic, AIG, Jackson Financial, Wells Fargo, Citi, CVR Energy, etc., as well as ETFs such as SPYD and SPLB. I am currently looking for additional "value stocks."
Also, my main battlefield is the Japanese stock market, so I add "growth and profit announcement stocks" to the original "value stock start stocks" and invest in mutual funds such as "US growth stock fund, global equity top focus, Fidelity world undervalued growth stock fund," etc. And from just before "8/5 Reiwa Black Monday," I added additional mutual funds such as "European growth stock fund and gold
Of course, I also have monthly investments in "accumulated NISA investment slots" such as Orkan, 8 asset allocation, NEXT FANG+, and iShares India Stock, etc.
Since I am a "US stock market beginner
So, what I can do now is to use the appreciation of the yen to "diversify investments" in "long-term, regional, stocks, and commodities" with "dollar foreign currency deposits = accumulated ordinary deposits & dollar time deposits for 6 months & 1 year," etc.
"Japanese stocks," "US stocks," and "total investment assets" are already in a state of "human-investment trustification?"
However, the eyes of "recession concerns
I don't like it〜. Even though this year's "blamans" is a "decline for the first time in 16 years since the 2008 Lehman Shock," it can be interpreted as "possible that there will be a decline in the overall US market" and "another market crash
"More cash on hand" & "less holding position" and "diversified investments." Is this the "safe direction"? Well, the investment style is free, so the "correct answer" won't be known until the end of the adjustment phase. I will continue to carefully search for the "best move" without having any regrets later like "if I had referred to that comment."
I would like to express my gratitude for providing very useful information and for the comparison and analysis.
Thank you very much
I will continue to refer to it.
From a small individual investor & "US market beginner
183531506 : It has become a reference.