"Non-landing" plunged global stock markets, and the market value of the seven U.S. technology giants evaporated to a record high

"No Landing", a scenario that was treated as a joke last year, is now gradually becoming a reality, coupled with the escalation of tensions in the Middle East, which has also led to a violent sell-off in global risk assets and popular stock markets that have risen throughout the year. (The United States, Japan, etc.) have finally consolidated seriously.

According to the theoretical definition, "non-landing" means that inflation continues to be high and cannot return to the Fed's 2% target, but the U.S. economy continues to grow. This is different from the most ideal "soft landing" scenario, which refers to economic growth slowing but not reaching the level of recession and inflation returning to around 2%.

Several blockbuster data have given rise to a "non-landing" scenario - U.S. retail sales, known as "horror data", increased by 0.7% month-on-month in March, higher than the expected 0.3%, the latest forecast of the Atlanta Fed's GDP Now model U.S. GDP in the first quarter will grow by 2.9%, higher than the 2.3% predicted at the end of March; a week earlier, U.S. CPI inflation data in March exceeded expectations, rising 3.5% year-on-year (consensus 3.4%), a new high since September last year. The market clearly underestimated the stickiness of inflation, which led to the postponement of the first interest rate cut expectation to September, and even the market began to worry about the possibility of raising interest rates again.

In the past week, the Nasdaq 100, S&P 500 and Nikkei 225 indexes have retreated by as much as 6.09%, 3.54% and 5.09% respectively. These are also the three most popular targets among global investors in the past two years. The market value of the "Seven Technology Giants" in the United States has evaporated by a total of 950 billion U.S. dollars, setting a record. Nvidia's market value has suffered the most, and Tesla fell more than 14% last week.

The Asia-Pacific region (excluding Japan) experienced a sharp sell-off of US$82 billion last week, with a net outflow of US$57 billion from the Chinese Taiwan stock market, a net outflow of US$9 billion from A-shares, a net outflow of US$8 billion from India, and a net outflow of US$7 billion from the ASEAN market. Overseas investment managers interviewed by China Business News generally believe that risk aversion dominates and the correction may continue for the time being.

The "no landing" scenario is becoming reality day by day

Due to the expectation of a shift in U.S. interest rates, more and more people expect that the U.S. economy may experience a "non-landing", which also means that although the U.S. economic resilience remains strong, inflation may remain higher than the Fed's target for a longer period of time. This is bad news for the capital market because the interest rate cut may be in vain. At least the expectations at the beginning of the year that there will be at least 3 to 4 interest rate cuts in 2024 have disappeared. The turn has been sudden, which has also led to a sudden sell-off in the market.

A recent Bank of America survey found that more than one-third of investors believe the United States will move toward a "non-landing" direction in the next 12 months, compared with 10 months ago, when only 3% believed the United States would. There is a "no landing", and the number of people who believe that the United States will have a "soft landing" or a "hard landing" is significantly reduced.

Over the past few months, the Federal Reserve and the market have confidently stated that they are confident that inflation will come down and have released signals to cut interest rates. However, as CPI rose for three consecutive months and exceeded expectations, Fed Chairman Powell himself also completely changed direction. Powell said last Tuesday that the stickiness of inflation has weakened the central bank's confidence in cutting interest rates in the near future, bluntly stating that interest rates will remain high for longer than expected. Fedwatch tools show that only 16.3% of expectations for a rate cut in June remain. Expectations for an interest rate cut in September are relatively high, approaching 71.9%, and the next Federal Reserve interest rate meeting will be in November, during the U.S. election. The market still expects the Fed to cut interest rates at least once symbolically before the election.

In terms of the core inflation composition in March, transportation services accounted for only 7% of the core CPI, but this time they contributed more than one-third of the core CPI month-on-month growth, reflecting the larger-than-expected growth of auto insurance. (+2.6%, consensus estimate was +1.4%, previous value was +0.9%) and a 1.7% increase in vehicle repair costs; non-housing services inflation rose to +0.65% from +0.47% in February (+0.85 in January %); medical service prices also rose strongly (+0.6%). However, housing indicators, which account for a large proportion, performed steadily (rent accounted for 30%~40%), and main rental inflation slowed down (from +0.46% to +0.41% month-on-month); cars (used cars -1.1%, new cars - 0.2%) prices also fell; air fares fell, but less than expected (-0.3% vs. -3% expected).

Goldman Sachs believes that although some unexpected factors caused inflation to exceed expectations in March, major rental and second-hand car price trends have been downward, so it is still only a matter of time before interest rates are cut.

However, for the rigorous Federal Reserve, after experiencing data surprises, the FOMC will have to observe at least several months of data before making decisions. “We think the Fed will need to balance it with weaker data in the following months after seeing three stronger inflation data between January and March before it is likely to continue to push for rate cuts. This means that July (or The possibility of two interest rate cuts in September and November is higher, but expectations for one interest rate cut are now rising," Jerry Chen, a senior analyst at Jiaqiang Group, told reporters.

"Profit-taking" surges

Nonetheless, as the market's early expectations for interest rate cuts were relatively aggressive, the recent shift has also led to a surge of "profit-taking orders", exacerbating the market's correction.

The U.S. 10-year Treasury bond yield has risen from 4.20% in early April to around 4.6% currently, an increase of 0.4 percentage points. It represents the market's expectation that the federal funds rate will be higher in the short to medium term; the rise in bond yields means that the cost of holding stocks has surged. The Nasdaq 100 index has fallen for five consecutive days, falling directly from the state of about to hit 19,000 points. Around 17,000 points. The S&P 500 also fell directly from above 5,200 points to below 5,000 points.

In the past week, the market value of the "Seven Technology Giants" has evaporated by a total of 950 billion U.S. dollars, setting a record. Judging from the stock price, Tesla was the largest decliner, falling more than 14% last week. However, in terms of the amount of evaporation in market value, Apple, Microsoft, and NVIDIA contributed the most. The market value of these three companies far exceeds that of Tesla. NVIDIA is the technology giant with the most severe loss in market value this week. NVIDIA's stock price fell 13.6% this week, the worst week since September 2, 2022, and its market value evaporated by nearly US$300 billion.

“The S&P 500 is trending lower, falling sharply to support near the 100-day simple moving average at 4,940 before rebounding above 5,000. Buyers will be looking to push prices above 5,000 and further test the March lows Point 5050, but ultimately failed," StoneX senior analyst Fiona Cincotta told reporters.

Wall Street institutions generally believe that the correction is not over yet. “If there is a break below 5,000, then we may have to start looking at longer-term levels to see where the next support level might be. If this is the case, the monitoring area worth considering is between 4,795 and 4,817, corresponding to the previous A two-year high.”

Looking ahead, this week will focus on U.S. GDP data and core PCE, the Fed's preferred measure of inflation, for clues on future U.S. interest rate trends. A stronger economy and higher inflation could raise questions about whether the Federal Reserve will be able to cut interest rates.

In addition, the earnings season is advancing, and Tesla will release its first-quarter earnings report after the market closes on Tuesday, April 23. The market has long been worried about the concentration risk of the "Seven Technology Giants", and Tesla is the biggest "underachiever" among them. The electric car maker's first-quarter deliveries fell to 386,810 vehicles, down 8.5% year-over-year, as demand for electric vehicles fell despite price cuts throughout the quarter amid falling demand, increased competition and a macro backdrop. Higher interest rates leave Tesla facing a disappointing quarter.

Schroders told reporters that the cyclically adjusted price-to-earnings ratio (31 times) of U.S. stocks is 22% higher than the average level after 1990, which reflects that the returns on U.S. stocks will fall in the future. Equity markets elsewhere face lower headwinds as the rest of the world's average cyclically adjusted price-to-earnings ratio (15x) is slightly below recent historical levels. Some people also mentioned that if the U.S. technology industry suffers a setback, will it drag down the entire financial market? The agency believes that the situation is different this time. The most obvious thing is that compared with 25 years ago, the fundamentals of the technology industry are now stronger and have a huge impact on the financial market.

Asia-Pacific markets suffered capital outflows

Affected by external panic, especially the rise in the U.S. dollar and interest rates, the Asia-Pacific stock market experienced a sharp sell-off of US$82 billion. The Nikkei 225 Index's correction in a single week was as high as 5%, and the Asia-Pacific market saw a sharp sell-off of US$82 billion.

In terms of global capital flows, global equity funds experienced an outflow of US$9 billion last week. Among developed markets, there were US$4 billion in outflows from the United States, US$6 billion from Japan, and US$17 billion from Europe.

It is worth mentioning that the recent fluctuations in the Chinese stock market have been relatively small due to low valuations. Overall, A shares have rebounded nearly 13% from their lows in late January. Goldman Sachs said supporting factors include continued policy easing that drove economic growth in the first quarter that exceeded expectations. At the same time, the "national team" estimates that about 200 billion yuan has been invested in index ETF products; as Sino-US relations stabilize, Goldman Sachs said that this has also caused investors to begin to reconsider and review their strategic positions in the Chinese stock market.

Kinger Lau, China equity strategist at Goldman Sachs, said that among global mutual funds and hedge funds, nominal exposure is currently at a ten-year low, but hedge funds have already increased their positions. For longer-term investors, issues such as the real estate market and local government debt still make them cautious, but they have also reduced their underweight on China, from 400 basis points underweight a year ago to 350 basis points now. basis points to better manage the tracking error risk of their portfolios.

Morgan Stanley Fund told reporters that in the short term, there may still be some pressure on the first quarter report, and the overall policy strength is relatively weak, so the market is in a volatile pattern. However, as price indicators such as PPI stabilize, performance improvement is expected to increase starting in the second quarter, and institutional dividends and fundamentals are expected to resonate.