U.S. Stocks Fall Again; 70% Chance for A-Shares to Rise Before Holiday

Last night, the three major stock indices in the United States fell again, with the Nasdaq Composite Index down by 1.4%, and both the Dow Jones Industrial Average and the S&P 500 Index also experienced declines.

However, the three major European stock indices closed higher last night, with Germany, France, and the United Kingdom all showing a certain degree of increase. There was no scenario where all European and American markets fell simultaneously again.

Combining some data from the A-share market over the past decade, along with recent self-purchase actions by fund companies, today, being the last trading day before the Lunar New Year, there is a 70% probability that the A-shares will close with a positive market.

01

The Federal Reserve meeting concluded in the early hours yesterday morning, and there was no black swan event, at least not an immediate interest rate hike. However, the Federal Reserve also clearly indicated that it would start raising interest rates in March and did not rule out the possibility of raising rates after every future meeting. If this is the case, then the number of interest rate hikes this year will far exceed the market's general forecast.

This somewhat hawkish expression has put some pressure on the market.

In the case of interest rate hikes, the increase in the risk-free interest rate is a significant bearish factor for the stock market, especially for high-valued technology stocks which would be greatly discounted under such circumstances, hence the larger decline in the Nasdaq.

For several consecutive days, the Hang Seng Technology Index in the Hong Kong market has also fallen more than the Hang Seng Index, for the same reason. During this period, the decline in the ChiNext Index in the A-share market has also been relatively high.

However, it now appears that the emotional-driven decline in U.S. stocks is nearing the bottom, with emotions being largely released.

Compared to the continuous decline in the previous period, the closing positions of the three major U.S. stock indices in the recent four trading days have been quite close, without the rapid consecutive significant declines seen before.The Hong Kong market, even though it has declined in recent days, has not yet reached its previous low, and has not disrupted the upward trend. Next week, the A-shares will be on a break, and based on the current situation, we do not need to be overly concerned about issues in Europe and America during the Spring Festival. There is a high probability that the U.S. stock market will gradually recover and rise during this week.

02

Data from the past 10 years indicates that on the last trading day before the Lunar New Year, the market has risen on seven occasions and only fallen on three, with the declines being relatively small. In two of those instances, the decline was less than 1%. Therefore, it is highly likely that today, as the last trading day, the market will close with a positive result.

I believe that what everyone is more concerned about is not the fluctuations of a single day, but the trend over a period of time. Over the past two days, Caishuo Mingbai has conducted extensive data collection and calculations and found that the current decline in indices such as the ChiNext Index, the CSI 300 Index, and the CSI 500 Index has already exceeded the average decline of previous years and is approaching the level of the highest declines in several instances. This suggests that there is not much room for the market to fall further.

Looking back over the past 15 years, the CSI 300 Index has experienced significant annual declines only three times, in 2008, 2011, and 2018. Analyzing the reasons and context for those declines, they are quite different from the current situation, so we are not overly concerned that the decline from 2022 to now marks the beginning of a significant annual decline. On the contrary, it is quite possible that this period of decline has accumulated a solid foundation for an upward trend after the Spring Festival.

By the way, the market experienced a significant decline in the second half of 2015, but that year was not characterized by a full-year decline.

When it comes to investing in funds, there are several popular directions or themes. I have also specifically looked into many consumer, pharmaceutical, and new energy funds and found that the current drawdown situation for these funds is close to the maximum drawdown of the past three years, and even the past five years. The space and possibility for further declines are now far less than the potential for increases.

03The factors currently affecting the decline in the stock market are mainly several.

The short-term impact is the geopolitical factor in Ukraine, but the news currently revealed is that the quadrilateral talks have achieved positive results, and it is estimated that such short-term events will not affect the long-term trend of the market.

The second factor is the recent epidemic data. Last week, the number of confirmed cases worldwide set a new high, which seems to have an impact. However, we can also see positive factors. The current severe illness rate and mortality rate are both declining. Perhaps the epidemic is slowly transforming towards influenza, and its impact on the economy will gradually decrease.

The third factor is the inflation and interest rate hikes in the United States, but as long as expectations are stable, the fluctuations affected by emotions will decrease.

On the contrary, the driving force for A-shares to rise is becoming stronger and stronger.

We mainly look at the aspect of funds.

Firstly, under the requirement of stable growth, the liquidity in the market is gradually becoming abundant.

With a series of policies, the two reserve reductions in the second half of last year, the consecutive LPR reductions in December last year and January this year, the liquidity injected into the market before the Spring Festival, and the major projects started by local governments, these series of operations are actually quite similar to the situation in 2020.

Everyone should not forget that the fund performance in 2020 was really good. The average increase of funds set a new high in recent years, and the number of funds that doubled was even more surprising. Therefore, 2022 may be a general rise driven by liquidity similar to 2020.Additionally, we must also pay attention to the continuous inflow of foreign capital.

After the United States raises interest rates, international capital will flow out of emerging markets. One destination will be the United States, but another important destination will be China.

Driven by these funds, it is believed that 2022 will not perform too poorly, and we can look forward to a rise in the stock market after the Spring Festival.