This week, the three major US stock indexes reversed their declining trend, and US inflation seems to be peaking, and investment banks have speculated that this round of decline in US stocks has come to an end.

This week, the s & p 500 index rose 6.6%, its biggest weekly gain since November 2020, ending a seven-week decline and the longest losing streak since 2001. The Dow rose 6.24% this week, ending eight consecutive losses, the longest losing streak since 1923, and the Nasdaq rose 6.84% this week, ending seven consecutive losses.

It is important to note, however, that despite the sharp gains in the three major stock indexes this week, the S & P 500, Dow and NASDAQ are still down 12.76%, 8.6% and 22.46% respectively since the beginning of the year.

The BofA Merrill Lynch panic index has entered a range of extreme panic.

However, statistics show that the S & P 500 has risen more than 6% a week since 1950, a total of 25 times. Among them, only 2 times after 3 months, 6 months and 12 months still fell, and the probability of rising after that was more than 70%. The median rate of increase after 3 months, 6 months and one year was 10.8%, 16.6% and 22.2%, respectively.

Obviously, the market is already acting quietly. Net inflows into US stocks exceeded $20 billion this week, the largest in nearly 10 weeks.

JP Morgan said buybacks by large companies were likely to reach a record $600 billion in the first half of this year and were close to $300 billion in the first quarter of this year. The greater the decline, the higher the repurchase efforts, which is the bounce bullet of the rebound.

Analysts shout, bottom tamping

Marko Kolanovic, a global market strategist at JPMorgan Chase & Co, once again firmly defended the "bottom theory", saying in the latest letter to clients that US stocks may finally hit bottom.

Mr Marko Kolanovic said there was no need to worry about where the market would step in. The more important question to consider is what to buy. "at present, there are huge opportunities in some market segments such as energy, small-cap stocks, high beta / cyclical stocks and emerging markets, with valuation discounts at record highs in many of these markets, while other sectors are still expensive," he said. and may not perform well, such as the bond agency industry. "

Goldman Sachs Group said there were signs that US inflation was starting to fall from at least 40-year highs, which could be good for the stock market.

Goldman Sachs Group team wrote: "in fact, inflation peaking may be helpful, but the stock market does need other support, especially if investors are worried about a further economic downturn." "the key factors needed to boost market momentum include a strong economy, low valuations and lower interest rates. October 1990 was positive in all three areas, and the S & P 500 rose 29.1% the following year.

'The stock market will rise as the economy adapts to inflation, 'says Thomas Peterffy of Interactive Brokers. In the first quarter of this year, the US economy contracted at an annualised rate of 1.5 per cent, stock market valuations fell sharply, but still slightly above the 10-year average, interest rates were also rising, but bond yields were off their highs.

Tom Martin, senior portfolio manager at Globalt Investments, said: "the market has taken a break in the downside mode. The decline has come a long way and is falling very fast. If we can stabilize here, then the bottom may be close to this level." "

Jeff Kilburg, chief investment officer of Sanctuary Wealth, said he sees the U. S. bond market as a "benchmark" for stocks. The yield on the 10-year Treasury note has fallen below 2.75% from a peak of more than 3% this year.

"I don't think this is a bear market rally and investors are readjusting their positions. A lot of people were too pessimistic before. In terms of interest rates, when you see treasury yields above 3%, this is unsustainable. When the yield is below 2.75%, the stock market can recover, which is all the short-term factors for returning to the stock market.

Dong Zhongyun, chief economist of AVIC Securities, also believes that the most hawkish moment of the Federal Reserve may be passing, and the United States is less likely to fall into stagflation in the early 1980s.

The direct cause of this round of inflation is the unlimited quantitative easing policy adopted by the Federal Reserve after the epidemic and subsidies from the fiscal authorities, superimposed by factors such as the disturbance to the economy caused by the continuous variation of the virus and new geopolitical conflicts, which eventually pushed inflation up to a level not seen in 40 years. Although the causes of this round of inflation have many similarities compared with the period of high inflation. But in fact, in a period of high inflation, apart from the excessive use of expansionary economic policies by the Federal Reserve and the fiscal authorities, the failure of the management of inflation expectations, that is, the unanchoring of long-term inflation expectations, is another important reason why inflation has evolved into stagflation.

In the process of controlling inflation, the Fed is fully aware of the importance of expectation management. Judging from the current level of inflation expectations implied by interest rates, the implied inflation rate of 5-year / 10-year Treasury bonds has fallen from the previous period and flattened out. This means that the Fed has now succeeded in suppressing market expectations of a long-term sharp rise in inflation.

Inflation is likely to fall back in the middle of the year as the Fed tightens policy. Combined with the peak of inflation expectations and the weakening of economic momentum, the Fed's most hawkish moment may have passed, and future inflation and economic indicators may gradually weaken the Fed's hawkish stance.

On Thursday, May 27th, the US Department of Commerce data showed that the US PCE price index rose 6.3 per cent in April from a year earlier, with an expected value of 6.2 per cent and a previous value of 6.6 per cent. This is also the smallest increase in the index since November 2020.

"inflation has been very high and rising over the past year, and we are now in a stage of 'falling slowly from high'," said Tim Quinlan, a senior economist at Wells Fargo & Co. "

How big is the bear market?

Some analysts believe that the bear market is soaring.

Joseph Saluzzi, co-head of equity trading at Themis Trading LLC, a financial institution, said U. S. stocks entered a buffer period before entering the bear.

"when the stock market falls to this point, it doesn't take much effort to rebound. And the rebound came quickly. The problem has not gone away, but we have temporarily found a middle ground between inflation and recession. "

Societe Generale Securities Zhang Yidong also believes that the current U. S. stocks "medium-term end" may have appeared, the main index close to or beyond the bear market dividing line, and then is expected to usher in a few months of "gasp" window.

But this does not mean that U. S. stocks will usher in a reversal, and then may continue the downward trend. "the bear market in this US stock market recession may be doomed," he said.

Analysts are also divided over whether U.S. stocks are rebounding or reversing at present, because the market as a whole is in a very awkward position. Judging from the decline and timing of the S & P 500, it is hovering in a bear market range of-20%. At the same time, the decline has been going on for 100 days. If you can support a direct reversal at this point, you will not enter a bear market, which has happened many times in history.

But it is also possible to rebound strongly within the full range of bear markets. after all, it has only fallen for 100 days, and several major bear markets in history have either fallen or lasted longer than this round. For example, in the COVID-19 bear market in 2020, the S & P 500 fell for only about two months, but at one point it fell as much as 37%. For example, during the global financial crisis in 2008, S & P halved directly and fell for nearly a year.