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Market Doubts Fed's Anti-Inflation Strategy, "No Landing" Theory Re-emerges in US Economy
Wall Street is currently embroiled in a heated debate over the future of the U.S. economy: a soft landing, a hard landing, or no landing at all?
Last Friday's non-farm payroll data significantly exceeded expectations, and concerns about rising inflation and the tightening of the Federal Reserve's monetary policy have resurfaced. Amid mixed signals, the market is in a state of watchfulness, and the discussion of whether "good news is truly good news" has returned. The argument that the U.S. economy will experience a "no landing" has also reemerged.
Kevin Mahn, President and Chief Investment Officer of Hennion & Walsh, stated:
"I believe so, until we receive more information from the Federal Reserve, and we still have an election on the horizon with uncertain outcomes."
However, Yahoo Finance analysts have indicated that despite the current warnings of a "no landing," there is still an optimistic sentiment for a "soft landing," and concerns about a "hard landing" are virtually non-existent—this worry seems to be diminishing as the U.S. stock market soars.
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The sentiment in the U.S. stock market is high, but the bullish trend is weakening.
"No landing" typically refers to an economy that, after high growth, does not experience the expected slowdown or recession but continues to maintain strong growth momentum. However, inflation levels are not effectively controlled, leaving the Federal Reserve with little room to lower interest rates. Stocks benefit from the robust economic performance on one hand, but are also suppressed by the rise in risk-free interest rates, resulting in an overall volatile trend.
Currently, the sentiment in the U.S. stock market is high, with CNN's Fear & Greed Index currently at 72, not far from the "extreme greed" level of 75.However, the "no landing" warning has also made the market more cautious. Many signals indicate that investors' bullish sentiment for the future of the stock market is waning.
Bond yields are soaring, and the U.S. Treasury yield curve is once again heading towards inversion. The volatility index of the bond market has just jumped to its highest level this year, indicating investors' anxiety about market turmoil. Historically, when the volatility index of the bond market soars, the stock market often experiences fluctuations as well.
Is the bull market set to continue with a surge in stock liquidity?
Michael Howell, founder of Capital Wars, research indicates that stock liquidity is surging. He points out:
"The rise in liquidity is supporting risk assets, and recent events have proven this relationship. Risk assets have fluctuated significantly recently, but the rise in liquidity levels has supported their upward trend."
Howell also notes that a typical liquidity cycle usually lasts 5 to 6 years, and the current cycle has only passed about one-third. This corresponds with Mahn's observation that the average duration of a bull market is about 5.3 years, and currently, it is only in its second year. Mahn stated:
"If history is any reference, we still have a few years of bull market ahead."
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