Likes ReceivedRecent stock market trend analysis has gradually started to bottom-fish high-quality stocks that align with the trend.
Recent trend analysis of the stock market has gradually started to bottom-fish high-quality stocks that align with the trend.
=====================
Main reasons for the stock market correction
===============
1. The main reason for this stock market correction is that the inflation data from January to March was slightly higher than expected, possibly exceeding the actual inflation figures.
2. The Federal Reserve's baseline may change, and there might be no interest rate cuts this year?
3. Surprisingly strong economic data suggests that the U.S. economy may have begun a gradual recovery?
4. Interest rates, the U.S. dollar, oil prices, and gold have all reached multi-month highs.
5. From late October last year to the end of March this year, the stock market surged from 4100 to 5265 without a single correction exceeding 3%, marking a 28% gain—a historically rare occurrence.
6. Additionally, recent instability in the Middle East, with Iran and Israel retaliating against each other, raises hopes for a quick resolution but may instead escalate further.
Therefore, recent trading should be approached with caution.
The strong bull market trend remains unchanged
====================
1. Although the Fed may slow the pace of rate cuts (a negative for valuation denominators), the improving economy benefits corporate earnings (a positive for valuation numerators).
2. Maintaining high interest rates to curb inflation could lead to renewed stock market gains if inflation data shows a decline in the coming months, realigning FOMC rate-cut expectations.
3. Stocks and interest rates may begin to decouple. Strong economic data could push rates higher without necessarily dragging stocks down, with the 10-year yield likely oscillating between 4% and 4.75%.
4. From 1995 to 2000, U.S. 10-year rates stayed above 4%, yet stocks—especially tech stocks—surged multiple times amid the internet boom.
5. There’s hope for a repeat of the late-90s market rally, this time fueled by the AI wave.
Correction depth
===========
If:
1. Corporate earnings exceed expectations, rising 5%-8% or better (current forecasts are only 3%).
2. Next week’s PCE and May/June CPI/PPI/PCE data show inflation continuing to decline slowly.
Then the market’s pullback may be shallow, with a 5%-7.5% correction likely oscillating between 4900 and 5265.
However, if:
1. Q1 earnings meet expectations.
2. Inflation data continues to rise.
Then the correction could deepen to around 10%, dropping to 4730.
Post-earnings stock patterns
====================
1. Stocks with strong prior gains need outstanding earnings to rise further; otherwise, they face "sell on the news"—at least in the short term.
This resembles Q3 last year, where good earnings were met with selling—a classic correction scenario.
2. Recently, underperforming stocks with strong earnings have rebounded.
For example, UNH rose for two to three days post-earnings.
After peaking at $532 in February, UNH fell to $436 before rebounding to $507 recently.
3. Hopefully, upcoming earnings from bellwether stocks can shift this trend?!
Position management
======
Since this correction is typical in a bull market—driven by an overly strong economy—adopt the "Lazy Rollercoaster Investing" method and pyramid-style position adjustments.
1. Hold high-quality growth leaders long-term.
2. Use part of the portfolio for swing trading (buy low, sell high).
3. Use this correction to pyramid into trending sectors:
A. AI stocks
B. Bitcoin stocks
C. Weight-loss drug stocks
D. Inflation catch-up plays
Retail investors’ "Ye Gong Hao Long" syndrome
===============
As I’ve stressed, no one can pinpoint market/stock bottoms. Avoid the retail trap—"Ye Gong Hao Long" syndrome:
1. Regret missing the rally during sharp gains.
2. Wait for a pullback as the market hits new highs, missing profit opportunities.
3. Fear deeper declines when the correction arrives, hesitating to buy.
4. Obsess over buying the absolute low, missing rebounds.
5. This cycle repeats, leaving retail investors sidelined as the market climbs.
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
