According to the Zhitong Finance and Economics APP, the seemingly unstoppable rebound of the US stock market is beginning to falter as the momentum that has been driving the market to new highs is facing a series of challenges. Concerns about a US economic recession have triggered significant selling, and the sharp drop in the US stock market in early August has shown how quickly the situation can deteriorate, shocking investors who are used to the market only moving in one direction. Although the S&amp;P 500 index, as the benchmark index of the US stock market, rebounded afterwards, the key is that it did not recapture all lost ground. The US August non-farm payroll report released last Friday showed weak job growth, further reinforcing the view that the labor market is cooling down and causing market volatility. The S&amp;P 500 index fell by 4.25% last week, while the Nasdaq 100 index recorded its largest weekly decline since November 2022.
Concerns about a US economic recession are just one of the &#34;cracks,&#34; as investors are also worried about global economic growth weakness and the impact of this weakness on earnings and prices. This makes the future path look even more uncertain, despite the blurry interest rate path becoming clearer, and investors are counting down the days to the first rate cut by the Federal Reserve in four years.
In addition, factors such as the US presidential election, political turmoil in Europe, and the concentration of funds in large tech stocks may all undermine the bullish sentiment that sometimes seems unshakable. Valuation bubbles have also triggered new vulnerabilities. Many investors have had to chase the uptrend, buying in at high stock prices, which means that if the uptrend starts to reverse, they may sell quickly, causing the market to fall harder and deeper before the usual buying support appears. It is worth noting that the shift in options trading and the power of systematic investors may lead to unstable trends and potential risk avalanches.
Arun Sai, Senior Multi-Asset Strategist at Pictet Asset Management, said, &#34;Not long ago, the market was still one-way, with everyone rushing into the same group of stocks. Now the situation is different, and the market is unlikely to see such ruthless uptrends again.&#34;
New Targets
Even after the twists and turns of August, the S&amp;P 500 index has risen by 13% year-to-date, while the MSCI Global Index has risen by 10%. Due to the strong start of the year, strategists from institutions such as UBS and RBC Capital raised their year-end targets for the S&amp;P 500 index a few weeks ago.
However, these institutions now seem to believe that the best days may be behind us. The average forecast of 20 strategists tracked by Bloomberg shows that by the end of 2024, the S&amp;P 500 index is expected to rise by only 1%
Of course, the stock market has experienced such situations before. However, the fact is that whether it is the collapse of banks in the United States and Switzerland, or the escalation of geopolitical risks in the Middle East, the market's reaction has been temporary, with the stock market quickly rebounding and reaching new highs.
The biggest setback occurred in 2022, when high inflation and the Federal Reserve's monetary tightening actions triggered a global sell-off of $18 trillion. But as price pressures eased, investors bet that the Federal Reserve would loosen monetary policy again. This optimism has driven the S&amp;P 500 index to recover in 2023, with the index hitting new highs 38 times so far this year—and this number may continue to grow.
Concentration of Technology Stocks
If there is a stock that can summarize this year's stock market rally, it is NVIDIA (NVDA.US). NVIDIA symbolizes the concentration of funds in large U.S. technology companies, with its stock price more than doubling this year. NVIDIA has also been the biggest driver of the global stock market this year, contributing nearly one-fifth of the 10% gain in the Bloomberg Global Index.
However, the high dependence on artificial intelligence as a game-changer for productivity and the high concentration in technology stocks are concerning. NVIDIA has become a risk barometer for overall sentiment, as the stock's sharp decline earlier last week spilled over to other risk assets, indicating how high the risk could be if the stock disappoints.
Brent Schutte, Chief Investment Strategist at Northwestern Mutual Wealth Management, said, &#34;Everyone loves tech stocks because they can generate a lot of free cash flow, but they forget how much they paid for tech stocks.&#34; &#34;Artificial intelligence is a real thing, and I think these companies may be good companies, but are they good stocks? That's what we need to figure out.&#34;
Other risks to investor positions come from so-called trend followers or volatility control funds, as well as the increasing dominance of ultra-short-term trading in the options market. These factors could exacerbate intraday volatility in the stock market, as was the case during the stock market crash in early August.
Since August, concerns about economic growth have been central, with investors worried that the Federal Reserve may have waited too long to cut interest rates. Friday's U.S. August non-farm payrolls data increased traders' bets on a 50 basis point rate cut by the Federal Reserve in September. However, a rate cut does not guarantee that the stock market will rise again, as any larger monetary easing is a response to slowing economic growth. If accompanied by more pessimistic economic forecasts, this could become a catalyst for further selling in the stock market.
In the equally watched U.S. presidential election, polls show that Democratic presidential candidate Harris and Republican presidential candidate Trump are neck and neck. Last week, Trump pledged to cut corporate taxes to 15%, and Goldman Sachs strategists estimate that this move will increase earnings per share of the S&amp;P 500 index by about 4%
In contrast, Harris proposed raising corporate taxes and capital gains taxes for high-income earners.
Frederique Carrier, Chief Investment Strategist at RBC Wealth Management, also pointed out, &#34;The outcome of the US election may be contentious, adding another layer of uncertainty. I expect market sentiment to be more fragile by the end of the year and we continue to favor high-quality companies.&#34;
Ahead of the November US election results, hedge funds may continue to sell US stocks, as they typically choose to sell before such events to have more cash on hand for any volatility. However, Goldman Sachs data shows that despite hedge funds reducing their US stock holdings for months, their risk exposure has increased compared to the past six election cycles, indicating there is still more room for unwinding.
Jens Foehrenbach, Head of Public Markets at Man Group's discretionary business unit, stated, &#34;The biggest risk facing the US stock market is that the economy is transitioning from expansion to slowdown, or even possibly entering a recession. Valuations are somewhat overstretched and a hard landing is not priced in. Therefore, any negative surprises could trigger significant market reactions.&#34;

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With growing concerns about the US economic recession, the momentum of the US stock market rebound has been shaken, as the soft August non-farm payroll data caused market volatility. The S&P 500 index fell by 4.25% last week, and the Nasdaq 100 index recorded its largest weekly decline since November 2022. Investors' focus on risks such as global economic growth and the US presidential election has intensified market instability. Despite overall index gains, investors are facing increasing fragility and uncertainty

- The seemingly unstoppable rebound of the US stock market is facing challenges as concerns over a looming economic recession triggered significant sell-offs in early August, revealing the speed of deteriorating conditions and unsettling investors accustomed to one-directional market trends.
- Despite a partial recovery in the S&P 500 index following the sell-off, worries persist over soft job growth, indicating a cooling labor market and contributing to market volatility, with the S&P 500 and Nasdaq 100 indices experiencing notable declines.
- Investors are wary of various risks including global economic slowdown, impact on returns and prices, alongside concerns over valuation bubbles and potential instability from options trading shifts and the influence of systematic investors, highlighting a more uncertain path ahead despite clearer interest rate trajectories.

Concerns about recession dominate the trend of US stocks, the "September curse" may continue