CPI in the United States rose 6.8% in November from a year earlier, reaching a 40-year high since 1982. Excluding food and energy prices, the so-called core CPI rose 0.5% month-on-month, up 4.9% from a year earlier.
Most US. tech stocks have fallen sharply in the past two weeks, with the Nasdaq tech index down more than 6% from its November 22 high, but investor confidence in tech stocks has not diminished.Investors pumped nearly USD7 billion into the US stock market last week during the stock market crash triggered by the new variant Omicron, the largest weekly net inflow in four years.As a percentage of the total market capitalization of US stocks, this is the largest weekly purchase since December 2020. Investors bought shares in eight of the 11 sectors in the S&P 500, with the largest in technology stocks, the first net inflow of the sector since early October. Investors also bought heavily in discretionary consumer goods and financial stocks and continued to buy energy stocks during the fall in oil prices.
Despite market unease about Omicron variant, corporate profit growth is expected to exceed current Wall Street expectations. Broader risks in 2022, such as supply disruptions, higher oil prices and Fed interest rate hikes, are expected to be “digested” by the market. The increased uncertainty in the short term will help the Fed and other central banks to take a more cautious approach. Many investors also expect price increases to peak soon as supply chain bottlenecks ease.
Inflation was high but did not expect serious US bond yields to turn around. The US bond yield curve flattens. The spread between 5-year and 30-year yields in the current quarter is narrowing, and the curve is now close to its flattest level since March 2020. This suggests that bond market traders are betting that an accelerated rate hike will dampen economic growth. As of Friday’s close, the yield on the US 5-year Treasury note was 1.253%. The yield on the 30-year note was 1.882%.
Bloomberg points out that markets predict that if the Fed starts raising interest rates in mid-2022, the yield curve will be at its flattest level in a generation when the Fed tightens. The current spread between 2-year and 10-year Treasuries is only about 83 basis points.The flattening of US bond yields and the level of long-term yields indicate that investors believe. The central bank cannot do much until it stops easing. In addition, if factors such as the supply chain crisis and the spread of Omicron continue to threaten the recovery, the economy is likely to suffer a recession.
However, the stock market continued to explode without fear of inflation, with the three major stock indexes ending three consecutive overcast on Friday and the S&P 500 closing at a record high.The Fed’s tightening policy may curb big venture investment in speculative technology. But economic data suggest that the Fed’s decision may not stop the economy from recovering.
We have always stressed that, compared with the epidemic itself, how to respond to policies is more important in judging the different degrees of impact on both sides of supply and demand, which in turn affects the prospects of monetary policy. If Omicron is subsequently determined to be a mild variant, it will not completely reverse the current general direction of marginal improvement in global supply chains and price pressures since the Delta outbreak, although disturbances and delays cannot be completely avoided.
That is why the market has reacted positively after the release of inflation data on Friday. But for monetary policy, duration and absolute levels are still important, so there is a good chance that the Fed will accelerate the pace of Taper at the December 14 and 15 FOMC meeting against the backdrop of uncertain inflation, but it is also inappropriate to make a simple linear extrapolation of the pace of future interest rate increases against a background of uncertainty about the Omicron variant.
Apple’s share price has risen nearly 500% over the past five years, mainly driven by new products and services, not just from iPhone, while revenue from iPhone has grown by 40% over the same period. Over the past five years, about 6% of Apple Inc’s total revenue has come from AirPods, Apple Watch and some of the company’s new services that did not exist five years ago.In the future, products such as AR headsets are likely to contribute as much to revenue as iPad did in the first four years of its launch, and may show similar growth over the next five years.
Although Apple Inc made a relatively small contribution to global mobile phone shipments (13%) in the second quarter of this year, it earned 75% of the operating profit and 40% of revenue in the entire mobile phone market. Samsung is the world’s largest smartphone supplier in terms of annual shipments, it lags behind Apple Inc in terms of revenue and profit share. The above figures only cover the iPhone 12 series, excluding iPhone 13, which Apple Inc released in September, which is also in high demand.
Today, Apple is developing products to deal with two markets with obvious potential: the AR/VR market and the self-driving car market. As these new products get closer and closer to becoming a reality, the company’s market capitalization will need to reflect these future products and opportunities.That’s why we see Apple share prices was lagging behind most of the year amongst FAANG, but catching up in the last month to record high. Its market cap is approaching USD3trn in the foreseeable future. It also like a big ATM for large institutional investors for easy parking the money there when see any “black swan” event in the market. It is still better than holding cash in an inflationary environment.
Another opportunity that we see is to revisit those “work from home” companies that faced heavily sell off recently. Some of these companies actually present that they are being sustainably “stay connecting, stay competitive and even stay global competitive”. For example, DocuSign, could present a good opportunity post the sell-off. Their 3Q results showed only a growth of 28% versus 50% during pandemic. They guided for a 21-23% growth for 4Q. The share prices got sold off fiercely from the peak by 60% from USD314 to USD130-145 level. The company CEO also starts accumulating the company shares from here.
If the Fed finally raises interest rates next year. The equity market will gradually switch to blue chip. The market value is more dominant than the growth of small and medium-sized stocks. In addition, the increase in interest rates will lead to a strengthening of the dollar index, and the depreciation of the RMBexchange rate is expected to rise.
The meeting of the Politburo decided that the pro-active fiscal policy should be “sustainable”. This means that the current finance of China tends to retain rather than exert strength. At a time when the upward pressure on corporate costs is difficult to eliminate quickly, we can expect more from monetary easing.The implementation of the RRR cut marks the beginning of the current cycle of monetary easing, and we believe that the RRR cut is only a link of easing, not the only way. Under the background that the real loan interest rate tends to move up.Interest rates are likely to be cut next year.
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