U.S. policy shift or technology growth led by cloud computing in the fourth quarter is the main line of U.S. stock investment

  The Federal Reserve raised interest rates by 75 basis points for an unprecedented third time at the September meeting on interest rates. The Fed reiterated that it will firmly control inflation, and the pace of future interest rate hikes will mainly depend on the performance of inflation. As a result, the US CPI is expected to see a slowdown in the upward trend in the fourth quarter, which will open a window for monetary policy expectations and further bring investment opportunities for US stocks, especially the main line of technology growth represented by cloud computing.
U.S. stocks have limited earnings downgrades, and high-resilience growth sectors have greater opportunities

  Looking back at the first half of the year, under the influence of the epidemic, the global economic slowdown has intensified, and some unexpected factors have been superimposed, resulting in increased volatility in the global stock market, affecting supply chains such as semiconductors and automobiles, and inflation in the United States has risen sharply.
  In June 2022, the U.S. CPI increased by 9.1% year-on-year, hitting a new high in nearly 40 years. Against this backdrop, major central banks around the world have started raising interest rates, raising interest rates by 225 basis points since March, raising the target range for the federal funds rate to between 2.25% and 2.5%. Market expectations for the economy have shifted rapidly from overheating and stagflation fears in 2021 to recession fears.
  The Fed’s monetary policy has become the core factor affecting the trend of US stocks this year. The U.S. stock market has been falling all the way this year due to concerns about continuing interest rate hikes or exacerbating the risk of economic recession. From January to August, the Dow Jones Industrial Average, S&P 500, and Nasdaq fell 13%, 17%, and 24%, respectively, and the index volatility was It has reached the highest point in the past ten years except during the epidemic period.
  The previous economic recessions in the United States are usually triggered by debt crises. For example, the real estate bubble in 2008 was caused by the whole people borrowing to buy houses and financial institutions and real enterprises expanding their leveraged operations. Once the bubbles burst, the severity of the economic recession will be very large. But this time, the US economic environment is very different from 2008. First of all, the overall level of debt in the United States is relatively light. At present, the debt risk in the United States is mainly reflected in the aspect of enterprises. With the outbreak of the epidemic in 2020, the United States launched a large-scale assistance program to help companies delay debt defaults, and companies have not yet repaid this part of the debt. Overall, the risk of this recession is concentrated in corporate debt defaults, but it will be much less severe than in 2008.
The attached picture shows the Fed funds target rate and CPI comparison

Data source: Wind

  In the coming year, the severity of the U.S. economic recession will determine the decline in corporate earnings and the depth of the stock price correction. But while it is highly probable that the U.S. economy and earnings will eventually head into recession, it will likely be a relatively mild recession or stagnant growth rather than a debt-crisis-style recession or a deep-shock recession.
  The reason is that, in general, the US consumption data continues to improve, and the unemployment rate remains at a historically low level below 4%. Although the strong economy has brought about rising wages and driven consumer prices, such as rent and food prices, to continue to rise, but because the economic growth trend is declining, and without more extreme risks, according to the cyclical law, oil prices have fallen sharply, superimposed last year. Due to the effect of the high base of CPI in the fourth quarter, it is expected to see a slowdown in the rise of CPI in the fourth quarter, opening a window period for monetary policy to turn.
  The profit reduction of US stocks is limited, and the market’s turnaround is likely to be rushed based on the expected monetary policy shift. It is reflected in the US stock market that the bottom of the market is ahead of the bottom of the fundamentals. In the fourth quarter, once the monetary policy shift is established, the upward space for US stocks will open up, and the highly resilient growth sectors, especially the technology sector, may have greater allocation opportunities.
Sharp correction brings opportunities for systematic layout, leading cloud computing enterprises are still the core clues

  The U.S. stock technology sector has a relatively high elasticity, so it is expected to become the vanguard of the rebound after the market has experienced a sharp correction.
  The high elasticity of the technology sector is supported by the high performance growth of listed companies. Taking the Nasdaq 100, which includes many technology leaders, as an example, the growth rate of index-weighted income in the past three years has been 18.9%, which is much higher than that of the S&P 500’s 11% and the Dow Jones Industrial’s 6.6%. Supported by high-quality performance, the Nasdaq 100 index has risen sharply after 2019, and even if the market pulls back sharply in early 2020, it can still maintain an overall high positive return. From January 1, 2020 to August 31, 2022, the annualized return of the Nasdaq 100 Index in the past two years reached 13.6%.
  Capital markets are always used to overestimating short-term impacts and underestimating medium- and long-term trends. We believe that the toC internet user dividend of the US stock technology sector is still there, and the cloudification and digitization of enterprises will continue to constitute the core support for the sector in the medium term. At the same time, the current valuation of the US stock technology sector can already provide good downside protection, and the mid-term upside of the market is significantly greater than the downside. risk. It is recommended to pay attention to the systematic layout opportunities brought about by this sharp market correction. After the focus of investors shifts from liquidity to the economy, the technology sector with a higher degree of prosperity may rebound before the broader market.
  Since the beginning of the year, the overall decline of the US stock technology sector has been obvious, and the current sector valuation has basically returned to the level of 2014-2018. Taking the Nasdaq 100 index with a high weight of technology leaders as an example, as of September 20, 2022, the price-to-book ratio of the Nasdaq 100 index was 6.77 times, and the quantile level was 24.47%; the price-earnings ratio was 25.18 times, The quantile level was 12.17%. From the perspective of price-to-book ratio and price-to-earnings ratio, the overall valuation of the US stock technology industry is at a historically low position and has investment value.
Attached table U.S. stock cloud computing manufacturers second quarter revenue and profit data source: Wind

  If it is subdivided into companies, the valuation level of leading technology companies has fully reflected the impact of rising interest rates since the beginning of the year, and more reflects the possibility of subsequent potential downward revisions. Taking the largest five technology leaders as an example, their PE (TTM) are 27X, 19X, 12X, 21X, and 26X, all of which are in the middle and lower edge of the average compared to the historical level.
  Judging from the revenue data reflected in the mid-year report, the mid-term reports of major US technology companies are generally better than the previous pessimistic expectations of the market. Taking the five largest technology leading companies as an example, the total operating income of these five leading companies in the first half of the year increased by more than 7%. Therefore, whether in the short or medium term, we are relatively optimistic about the allocation value of the US stock technology sector. However, it focuses more on sub-sectors such as cloud computing, and it is recommended to focus on the leading companies among them.
  Cloud computing is the sub-field with the most certainty about the prosperity of the US stock technology industry. From the perspective of revenue performance, the revenue of the three major cloud vendors in North America continued to maintain steady growth in the second quarter, and the year-on-year revenue growth rates of the three major cloud computing leaders were 33%, 46%, and 36%, respectively. Although there was a slight decline to varying degrees compared with the first quarter, the overall situation was still better than the market had expected. From the perspective of later demand, with the improvement in the supply of some upstream chips and devices, cloud manufacturers are constantly adjusting their inventory strategies, and correspondingly reducing the driving force for storage chips, CPUs, etc., but the market demand for the whole machine remains strong, and according to the current main According to the CAPEX (capital expenditure) guidance of cloud vendors, we expect the shipment data from the second half to 2023 will be better than the first half. Considering the high concentration of the cloud computing field in the US stock market, it is recommended to pay attention to its leading companies, especially the leading companies with relatively stable customers of medium and large enterprises. One-click layout of related faucets through relevant indices is also a configuration strategy choice.