What is the future of US stocks? S&P 500 has hidden concerns
Summary
The overall average valuation of US stocks is still normal, but the stock differentiation is particularly serious. A few weighted stocks have been soaring. How do you view this phenomenon?
In addition, there are three major problems with US stocks: 1) The market value of the top stocks is too large and the growth space is limited. 2) The market expected volatility has been low. 3) The scale of derivatives is huge.
Analysis of major economic data: The US economy is likely to cool down rapidly. The US stock market is in a bad situation at this position.
Preliminary signs:
The average valuation of the S&P 500 is now 28 times (June 17 data, the same below), the average valuation of the Nasdaq 100 is 34.8 times, and the average valuation of the Dow Jones Industrial Average is 26 times. Although the valuation does not show an extreme tendency, the valuation of the overall market has little to do with the medium- and short-term rhythm of the market.
However, it is noted that the differentiation of US stocks is becoming more and more serious, and a few stocks have contributed most of the increase in the index. This differentiation has even reached a very extreme point recently, which greatly increases the fragility of the index structure.
According to data compiled by the media, Microsoft $Microsoft(MSFT.US$ Apple $Apple(AAPL.US$ , Nvidia $NVIDIA(NVDA.US$ , Google's parent company Alphabet $Google-C (GOOG.US)$, Amazon and Meta $Meta Platforms(META.US$ , currently account for about 30% of the S&P 500 index, which is higher than about 26% at the beginning of the year. The following chart shows the S&P 500 index weighted by stock market value.
Nvidia has risen by more than 150% in the past six months, and has risen by more than 500% in the past two years. In the past six months, Nvidia has contributed more than one-third of the increase in the S&P 500. It is incredible that such a huge market value of 3 trillion continues to grow by leaps and bounds.
A recent set of comparisons has shown that although Nvidia's continuous record highs have kept the S&P 500 index near its historical highs, the S&P 500 and other weighted indices have shown obvious signs of a correction. Nvidia's strength has largely masked the weakness shown by the broader index components, which may be worthy of people's attention at present.
Many times, the stock market has experienced a dramatic differentiation process before the top is formed. The last similar period in the US stock market was from the end of October to the beginning of November 2007.
Three major problems in the market:
1 The market value is too large, and it is very difficult to maintain high growth. According to the current global and US economic growth space, it is very difficult for several leading companies to further divide the pie for companies with a market value of more than 3 trillion US dollars. It is also a myth that such companies have high growth.
2 The market's expected volatility has been incredibly low. In the past six months, the market's expected volatility of the S&P 500 has been at a very low level. Such low volatility cannot continue. If there is an emergency, an avalanche effect will occur.
3 The scale of derivatives is huge. With Nvidia's surge, there are hundreds of billions of derivatives transactions every day. What do the counterparties of these products think? How do those institutions that sell derivatives make money? I think their ideas must be very complicated. My more concerned friends all say that they should buy insurance for Nvidia.
Analysis of major economic data:
According to Zerodege's analysis, how big is the downward buffer of the US core CPI?
The most important real-time house price and rent data are flat or entering negative growth, while the owner's equivalent rent reported by the Bureau of Labor Statistics (yellow, 5 months behind) is +5.6%. This will provide enough room for future declines.
Produced by Benying | What is the future of US stocks? S&P 500 has hidden worries
The number of initial jobless claims in the United States surged to the highest level since August 2023 that week. It is worth noting that this surge is very similar to last year (but different from previous years, so it is not a strictly "seasonal" pattern). The government data may be reflecting the actual situation.
The path analysis of economic data may show that economic data may show a cooling trend from mid-to-late June to mid-to-late July and even August and September.
The cooling of the US economy may come soon. The US stock market has entered the early stage of recession (in the early stage of the recession, the stock market performed relatively well due to the expectation of various policy relaxations). Once the middle of the recession cycle comes, the valuation will shrink significantly. Referring to the Chicago Fed's National Financial Conditions Index, it fell to -0.56, showing the loosest financial conditions since November 2021.
The overall dot plot forecast of the recent Federal Reserve interest rate meeting and Powell's speech after the meeting are still slightly hawkish. The environment for interest rate cuts has not arrived, and the tightening environment has not changed. The longer this continuous tightening environment lasts, the greater the damage to the economy will be, and the more severe the subsequent recession will be.
Funds and sentiment:
According to Goldman Sachs data, due to extreme levels of exposure to the US stock market, CTA will become a seller once the following thresholds are reached.
Overall conclusion:
Although many investors are still in high spirits and continue to look higher at this time, the outlook for US stocks is still clouded by ominous clouds from all aspects. Changes in market conditions are fleeting. We need to remind everyone to pay attention to the recent market clues. Even before the earthquake, there were many obvious signs.
$iShares Core S&P 500 ETF(IVV.US$ $Nasdaq(NDAQ.US$ $S&P 500 Index(.SPX.US$
$iShares Core S&P 500 ETF(IVV.US$ $Nasdaq(NDAQ.US$ $S&P 500 Index(.SPX.US$
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Talented Mr Ripley : bubble about to pop
lee…OP Talented Mr Ripley: uhhh