The US stock market suddenly experienced a fierce sell-off.
On the evening of May 30th Beijing time, data released by the US Department of Labor showed that 219000 people had applied for unemployment benefits for the first time in the week of May 25th, slightly exceeding market expectations of 217000 people. The latest quarterly inflation data shows that the Federal Reserve's preferred PCE price index for the first quarter of the United States recorded an annualized quarterly rate correction of 3.3%, slightly lower than the expected 3.4%. Analysts point out that overall, these data suggest an economic slowdown, which may reduce the likelihood of the Federal Reserve raising interest rates.
But this did not "save" the US stock market. The US stock market closed overnight, with all three major indexes falling. The Nasdaq accelerated its decline in late trading and ultimately closed down 1.08%, breaking a one week low since May 23rd; The Dow Jones Industrial Average fell 0.86% for three consecutive days; The S&P 500 index fell 0.6%, hitting its closing low since May 13th.
Currently, the bearish news in the US stock market mainly comes from the funding aspect. The latest report released by Goldman Sachs Group's commodities department indicates that last week (May 20-24), hedge funds were selling US stocks with rare intensity, with the selling speed reaching the highest record since early January this year. According to the latest report from Strategas Research, it is expected that from the end of May, there will be a loss of $130 billion (approximately RMB 940 billion) in US stock liquidity, which will continue until June, further exacerbating the tense financial environment.
Heavyweight release
On the evening of May 30th Beijing time, data released by the US Department of Labor showed that 219000 people had applied for unemployment benefits for the first time in the week of May 25th, slightly exceeding market expectations of 217000 people, with the previous value rising from 215000 to 216000 people.
At the same time, as of the week ending May 18th, the number of people continuously applying for unemployment benefits remained almost unchanged, at 1.791 million, slightly lower than expected, with the previous value dropping to 1.787 million.
Overall, the number of people applying for unemployment benefits is on the rise, with a 4-week moving average reaching an 8-month high. It is worth mentioning that the number of warnings and layoff announcements (provided by non-governmental organizations) has significantly increased.
In addition, the revised data released by the US Department of Commerce shows that the revised annualized quarterly rate of real GDP in the first quarter of the United States recorded 1.3%, which is lower than the initial value of 1.6% and significantly lower than the growth rate of 3.4% in the fourth quarter of 2023.
The decrease in economic growth rate is mainly due to lower than expected consumer spending. As the main growth engine of the US economy, the month on month growth rate of personal consumption expenditure (PCE) in the first quarter was significantly revised down.
In terms of quarterly inflation data released at the same time, the Federal Reserve's preferred PCE price index for the first quarter of the United States recorded an annualized quarterly rate correction of 3.3%, slightly lower than the expected 3.4%; After excluding food and energy, the core PCE price index in the United States recorded an annualized quarterly rate correction of 3.6% in the first quarter, which was also lower than the expected 3.7%.
Analysts point out that overall, GDP and related data suggest that the cooling of the US economy may reduce the likelihood of the Federal Reserve raising interest rates, giving Federal Reserve officials room to lower rates this year. According to data from the Chicago Mercantile Exchange, investors expect the Federal Reserve to only cut interest rates once this year before November.
But this did not "save" the US stock market. The US stock market closed overnight, with all three major indexes falling. The Nasdaq accelerated its decline in late trading and ultimately closed down 1.08%, breaking a one week low since May 23rd; The Dow Jones Industrial Average fell 0.86% for three consecutive days; The S&P 500 index fell 0.6%, hitting its closing low since May 13th.
But Chinese concept stocks rose against the trend, with the Nasdaq China Golden Dragon Index closing up nearly 1.4%, and new car making forces rising together. NIO Automobile surged by over 9%, Xiaopeng Automobile rose by 5.5%, Jike rose by 4.8%, and Ideal Automobile rose by 2.9%; Bilibili rose by over 5%, JD.com rose by over 3%, and NetEase rose by over 1%.
It is worth mentioning that there was a data interruption in the US stock market overnight. According to user reports, since 22:41 Beijing time, the S&P 500 and Dow Jones have failed to update real-time quotes, resulting in investors being unable to access the latest index data. It was not until 0:01 Beijing time that the Dow Jones Industrial Average quotation (function) returned to normal. From market reactions, actual trading activities have not been affected.
Air raid
Currently, the bearish news in the US stock market mainly comes from the funding aspect, and a large amount of profitable funds seem to be fleeing.
The latest report released by Goldman Sachs Group's commodities division pointed out that last week (May 20-24), hedge funds were selling US stocks with rare intensity, reversing the previous five week net buying trend, and the selling speed reached the highest record since early January this year.
Goldman Sachs report shows that index funds in the US stock market ETFs and individual stocks have both experienced net outflows of funds, including index funds ETF products have seen net sales for the first time in six weeks, and individual stocks have experienced net sales for three consecutive weeks, setting the largest nominal net outflow scale so far this year.
Selling actions have spread across 11 industries in the United States, with the industrial, information technology, and real estate sectors experiencing the most significant declines. It is worth mentioning that cyclical industries have recorded the largest nominal net sell-off since December 2023.
Among them, industrial stocks have been most severely affected, with a net outflow of funds recorded for 11 consecutive trading days.
The report also pointed out that recent signs of economic recovery and the Federal Reserve's hawkish policy stance suggest that the environment may remain at high interest rates for the long term, and the selling behavior is exactly the response of investors.
For the upcoming June, Strategas Research has warned in its latest report that due to temporary liquidity depletion, the S&P 500 index may experience a pullback in June of this year.
Strategists point out that it is expected that there will be a loss of $130 billion (approximately RMB 940 billion) in liquidity starting from the end of May, and this situation will continue until June, further exacerbating the tense financial environment. The reasons for the liquidity loss include the changes in the balance sheet of the Federal Reserve and the increase in the issuance of US treasury bond bonds.
Meanwhile, legendary investors Hussman Investment Trust President John Hussman recently released a report stating that the historical high of the US stock market gives the impression of a crazy rebound, but this is a bull market that will eventually collapse.
Hussman is one of the most pessimistic forecasters on Wall Street, and for several months he has reiterated his view that the US stock market may fall by more than 60%.
He stated that risk factors include overvaluation, stock sector differentiation, and imbalanced market sentiment. Another cautionary note is that more and more stocks are hitting a new 52 week low, while the stock index itself is soaring.
What is the future of the Federal Reserve
Currently, the biggest uncertainty in the US stock market may be the monetary policy orientation of the Federal Reserve.
It is worth noting that Federal Reserve officials have even issued a warning of interest rate hikes. On May 28th Eastern Time, Minneapolis Federal Reserve Chairman Cashkali, known as the "New Eagle King," recently stated that if inflation does not further decrease, the Federal Reserve may even raise interest rates. "I think we should not rule out any possibility at the moment," Kashkali added.
Kashkali stated that he is confident that the Federal Reserve will eventually reach its inflation target of 2%, but also said that I don't think there is a need to urgently lower interest rates and should take time to get things done. The Federal Reserve may consider raising interest rates, but at this stage, it is not suitable for constant changes.
In a recent interview, New York Fed Chairman William, who holds permanent voting rights and is the third in command of the Federal Reserve, stated that raising interest rates is not his baseline expectation. When to cut interest rates will depend on data performance, and there is no urgency in adjusting monetary policy. There is no need for inflation to reach 2% before interest rate cuts begin, and it is expected that the inflation rate will reach 2% in early 2026.
The latest report shows that American consumers seem to be more concerned about inflation, and the average expected inflation rate has risen to its highest level this year: people's inflation expectations for the next year have risen to 5.4%, the highest level since December 2023.
At present, the market generally expects that the Federal Reserve will maintain its benchmark interest rate unchanged at its policy meeting from June 11th to 12th. According to data from the Chicago Mercantile Exchange, interest rate futures indicate that investors now believe that the likelihood of the Federal Reserve keeping interest rates unchanged at its September meeting is over 50%, up from 42% a week ago.