The most dangerous September for US stocks is here! But why may it not experience a significant decline? Growth stocks remain the main focus!

After a disappointing August, the US stock market has entered the most dangerous month of September!

Taking history as a guide, September is usually the worst-performing month for the US stock market. Wall Street has also previously stated that the trend of the US stock market in September is expected to be more volatile. Perhaps only when the Federal Reserve stops raising interest rates and suppresses medium- to long-term US bond yields, will there be a slight breathing space for the US stock market.

CICC further pointed out that although the US stock market has returned to the starting point of early August in terms of points, behind the seemingly "stagnant" situation, there have been significant changes in the macro environment and policies, and even some possible "changes" are brewing.

The bank believes that the pressure of financial liquidity turning is still present, but growth provides a hedge, so there is no need to worry about the risk of a deep adjustment. It is not recommended to chase high prices, but if there is a large adjustment, it can be re-entered, and growth is still the main theme.

The accelerated issuance of bonds by the US Treasury Department and the continued reduction of the Federal Reserve's balance sheet will shift the liquidity supporting the market from incremental to decremental in the second quarter, which will still be a major pressure (under the benchmark scenario, assuming other factors remain unchanged and subsequent money market funds can still use reverse repurchase agreements to absorb US bond issuance, it is expected that financial liquidity may bring about an 8% to 10% pullback pressure on US stocks). However, growth resilience and profit upgrades can still provide a hedge, especially for the Nasdaq (the second-quarter Nasdaq Composite Index's EPS turned positive year-on-year to 14.5%, and profit expectations have been continuously revised upward since May this year), so there is no need to worry about the "Davis double kill" style of deep adjustment pressure.

It is not recommended to chase high prices, but if there is a significant adjustment, it can be re-entered.

If we make an overall judgment on the situation of the US economy in September, CICC believes that there is a high probability that there will be no interest rate hike in September, and the change comes from the opportunity for expectations to change rapidly after core inflation rapidly declines, while the noise comes from the rise in oil prices and overall inflation.

With the inclusion of the surge in supply from the issuance of Treasury bonds by the Treasury Department (it is estimated that the current -0.5% term premium is basically reasonable, corresponding to a 4% 10-year US bond yield) and Powell's vague handling of R* at the Jackson Hole meeting, the momentum of the surge and the steep decline in US bonds has largely dissipated, making 4.3% a temporary high point.

Next, the core inflation data to be released in mid-September will be another opportunity for expectations to switch. With the help of a high base from last year and improvements in supply factors, it is estimated that core CPI for this month will drop significantly from 4.7% to 4.08%. In addition to the widening decline in used car prices on a year-on-year basis, the August non-farm data has also shown signs of the job market moving towards more supply-induced wage declines, which is helpful in addressing super core inflation.

Possible noise comes from production cuts pushing up oil prices, thereby disturbing the overall inflation trend (because of the rise in oil prices, it is estimated that the overall CPI in the US this month will rise from 3.2% to 3.74%).

However, considering that the sustained impact of supply shocks is difficult without demand cooperation (the CICC Bulk Commodities Group expects the current oil price to be basically reasonable, with limited room for further significant upward movement), and Powell also emphasized at the Jackson Hole meeting that core inflation in the current environment is more important for Fed decision-making. Therefore, core inflation should still be the main consideration for policy and interest rate direction.

Based on this consideration, it is highly probable that there will be no rate hike in September, and although there is a possibility of a rate hike in November, it will not cause significant disturbance after being fully anticipated (the current CME rate futures predict a 94% probability of no rate hike in September and a 34% probability of a 25bp rate hike in November).

Therefore, the judgment remains that there is a ceiling on US bond yields, but the downside is temporarily limited. If the mid-September inflation data falls significantly or even exceeds expectations, it will provide significant trading opportunities in the short term, which is worth paying attention to.