The Federal Reserve scares the market! After the short-term "stimulus" of the US stock market, why is it not recommended to chase high?

Under the pressure of the Federal Reserve, US stocks plummeted again overnight, with all three major indexes hitting their lowest levels since the end of August. The Nasdaq 100 index fell below the 15,000-point mark.

The reason behind this is that although the Federal Reserve stayed put as expected, the dot plot unexpectedly turned hawkish, suggesting the possibility of another rate hike later this year and a potential halving of rate cuts next year.

This means that the Federal Reserve may maintain higher interest rates for a longer period of time, causing market concerns.

The research team at Dolphin Research believes that based on the dot plot and the comments made by Federal Reserve Chairman Powell at the press conference, there may be internal disagreements and uncertainties within the Federal Reserve and Powell himself. There may not be a clear and consistent conclusion yet, and further observation of future data is needed. However, two points are relatively clear:

1. The probability and necessity of aggressive rate hikes have decreased. Even if there is another rate hike in the fourth quarter, its impact after full anticipation may not be significant.

2. Rate cuts will take longer and the magnitude may be lower than market expectations, unless there are systemic risks or a significant downturn.

Generally, keeping interest rates high for a long period of time will put pressure on US stocks. Will it be the same this time?

According to Dolphin Research, for assets, this meeting is more hawkish in the 2024 dot plot, leading to higher interest rates and a decline in US stocks. However, supported by economic resilience, the market did not expect rate cuts to come so soon. At the same time, there are still significant variables in the rate cut path for next year, which means that after the short-term "stimulus" reaction of US bonds and stocks, it is difficult to use them as a basis for trend trading.

Overseas assets such as US bonds, stocks, and gold, which rely on trading opportunities brought by the decline in US bond yields, may need to wait for more effective trend opportunities. However, Dolphin Research predicts that credit pressure will become more apparent in the fourth quarter, providing better allocation opportunities.

Regarding US stocks, "rolling slowdown" supports earnings, while liquidity and valuation may cause disturbances. It is not recommended to chase after high prices, but excessive adjustments may provide re-entry opportunities.

Under the "rolling slowdown" scenario, US stock earnings are supported, and there is not much risk of a deep adjustment. Therefore, there is no need to worry about the pressure of a deep adjustment similar to the "Davis double kill".

However, in terms of valuation, there may be pressure on US stocks: from a price perspective, interest rates are temporarily maintained at high levels, and from a quantity perspective, calculations suggest that financial liquidity may bring about an 8% to 10% pullback pressure on US stocks. Therefore, it is not recommended to chase after high prices, and if there is excessive adjustment, it can be re-entered.