According to the Zhitong Finance APP, CITIC Securities released a research report stating that historically, the turning points of U.S. stock market recession expectations into actual recession trades are when corporate EPS begins to decline continuously. The performance/stock price of the financing industry (investment banking, consumer credit) is the most leading indicator of confidence cycles in previous recession trades. Recently, the U.S. stock market has entered a period of intensive earnings disclosures, and it is recommended to pay attention to the operating data of core cyclical companies, management guidance (especially in the investment banking and consumer credit industries), and key macro data. If the U.S. falls into an actual recession, it may have a short-term impact on Chinese equity assets, but in the medium to long term, it may align the economic cycles of China and the U.S., leading to core asset allocation opportunities.
CITIC Securities' main points are as follows:
A tracking system has been established to respond to the impact of the shift from North American recession expectations to actual recession on Chinese assets.
The impact of tariff trades or recession expectation trades on Chinese assets may be relatively limited, but if it evolves into recession trades, the scope of impact may significantly expand, and the intensity may increase. Therefore, a tracking system covering macro &#34;soft/hard&#34; data, core operating data of enterprises, and leading indicators of confidence has been established, combined with a timeline of key events, to facilitate investors in tracking and understanding the current stage.
Recently, the U.S. stock market recession expectation trades have continued to unfold, with macro data weakening and fundamental expectations alternating.
From the perspective of macro data, hard data, which truly reflects the economic situation in the U.S., has not shown significant deterioration (e.g., CPI remains stable, overall new non-farm employment remains stable), while soft data from survey sources has shown significant divergence (e.g., manufacturing and services PMI have weakened month-on-month, consumer confidence index has significantly declined). From the performance of listed companies, the main operating indicators for Q4 2024 remain healthy; however, analyst forecasts have begun to weaken. As of Q4 2024, the proportion of companies in the sample with accelerating core operating indicators is 55%, but according to S&amp;P's consensus forecast, the proportion of these sample companies that can continue to accelerate their core indicators will show a significant decline in Q1 2025 and Q2 2025 (33% for Q1 2025 and 43% for Q2 2025).
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/f76fc23647373b2891624acdeeafb836.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/f76fc23647373b2891624acdeeafb836.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/d3ccfa6e52ac9dd90d1a1d98c94abc3b.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/d3ccfa6e52ac9dd90d1a1d98c94abc3b.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/5b02ce6409a2f48d111a3e8ac53f517e.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/5b02ce6409a2f48d111a3e8ac53f517e.jpg"/>
The decline in EPS of US stocks is a key point in the expected transition to recession trading.
Historically, the turning point from recession expectations to actual recession trading in US stocks has always been marked by a continuous decline in corporate EPS in a high interest rate environment. In terms of rhythm, most recession cycles can be divided into three trading phases: recession expectation trading, first-round recession trading, and second-round recession trading. Recession expectation trading mostly occurs around the interest rate hikes following an overheated economy, usually resulting in only a drop in valuations; first-round recession trading typically appears at the tail end of a high interest rate economic cycle (the starting point of continuous slowdown and decline in corporate EPS), characterized by a double whammy of valuation and performance; second-round recession trading usually happens during a rapid interest rate cut by the Federal Reserve, at which point macroeconomic indicators significantly weaken, corporate EPS begins to weaken substantially and has not yet stabilized, resulting in the final wave of performance decline.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e0c310b23d6214dd90780b1b066fc46e.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e0c310b23d6214dd90780b1b066fc46e.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/50e02b20bc594d2effbd948cbb09296c.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/50e02b20bc594d2effbd948cbb09296c.jpg"/>
The performance/stock price of the financing industry is a leading indicator of confidence cycles in past recession trading.
Changes in investor confidence occur the fastest, followed by consumer confidence. In the past 30 years, during the 18 phases where the S&amp;P 500 fell more than 8%, representative investment banks (Goldman Sachs, Morgan Stanley, JP Morgan) and consumer credit companies (Synchrony Financial, Ally Financial) experienced average declines of -7% and -5% respectively in the early stages (the first quarter of each downturn), with cumulative declines of -26% and -28% over the entire phase.
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/a3641594b0597420be25ae42b9539161.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/a3641594b0597420be25ae42b9539161.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/d459371d473f394d6f91e55c562acd0e.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/d459371d473f394d6f91e55c562acd0e.jpg"/>
US stocks are about to enter a period of intensive earnings disclosures, while the resilience of Chinese assets faces short-term tests and long-term allocation opportunities.
Recently, US stocks are entering a period of intensive earnings disclosures. It is recommended to pay attention to the operating data and guidance of core cyclical companies (especially in the investment banking and consumer credit sectors) as well as key macro data, while tracking the capital expenditure situation of US technology companies. As the market transitions from trading recession expectations to actual recession, short-term negative shocks are difficult to avoid, but in the medium to long term, it may align the cycles of China and the US, bringing core asset allocation opportunities
<img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/f36d915dd0e8652ecd9476903d0aacc8.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/f36d915dd0e8652ecd9476903d0aacc8.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/47a08b91d318f4987c769aa1ff3daa33.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/47a08b91d318f4987c769aa1ff3daa33.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/8f700673ca72b1f0a2ee6e2ed274981f.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/8f700673ca72b1f0a2ee6e2ed274981f.jpg"/><img src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e0966048697b20369ec928ad3e7a6cc9.jpg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/http://img.zhitongcaijing.com/images/contentformat/e0966048697b20369ec928ad3e7a6cc9.jpg"/>
Risk Factors:
Increased friction in technology, trade, and finance between China and the United States; domestic policy strength and implementation effects falling short of expectations; escalation of conflicts in Ukraine and the Middle East; slower-than-expected digestion of real estate inventory in our country

600030

06030

CITIC Securities Co., Ltd. released a research report indicating that if the United States falls into a real recession, it may cause short-term shocks to Chinese equity assets, but in the medium to long term, it could promote the resonance of the economic cycles between China and the U.S., bringing core asset allocation opportunities. The report has constructed a tracking system to analyze macro data and corporate operating data, pointing out that the decline in EPS of U.S. stocks is a key node in the recession trade. With recent concentrated disclosures of U.S. stock earnings reports, it is recommended to pay attention to the data and management guidance of core pro-cyclical companies

Zhitong

CITIC Securities Co., Ltd.

CITIC Securities Co., Ltd.: If the United States falls into a real recession, it may have a short-term impact on Chinese equity assets