History repeats itself and the US stock bubble bursts. Can the global stock market crash be far behind?

The current situation of the US stock market is like boiling a bomb in warm water. I don't know the explosion point of the bomb, but I know the water temperature is rising. In the bubble, people can always find various reasons to explain the rationality of high valuation, which is the so-called "this time is different"; After the bubble burst, people will find all kinds of irrationality of high valuation afterwards.

Global liquidity is shrinking, and the external environment is increasingly unfavorable to highly valued assets. Under the existing funds, the "28-28 differentiation" of US stocks may intensify, and further gather to the core assets with definite performance and strong growth. The final result may be a retaliatory rise first, and then the bubble bursts.

The only reason why the bubble burst is that the valuation is too expensive and no special catalyst is needed. In the case of high valuation, any reason may be the trigger for the callback, whether it is negative news, financial scandals, political events or the emergence of big sales.

1. The pressure of rising interest rates

Although the inflation rate did not meet expectations, the inflation of asset prices also worried the Fed. The Federal Reserve began to raise the interest rate from 20 15 to 12, which not only put pressure on the valuation of the stock market, but also increased the interest expenses of listed companies and reduced the repurchase efforts.

High leverage intensifies the positive feedback effect of the whole financial system to some extent. Once the liquidity environment deteriorates, the profitability and cash flow generating ability of enterprises decline, and enterprises cannot continue to borrow and repurchase. High leverage also brings additional burden to the debt cost, which makes earnings per share suffer a double blow from numerator and denominator. From September 6th, 2065438 to September 7th, 2065438, the repurchase rate of Standard & Poor's 500 companies decreased by 5.3%.

Looking back, 1987, 2000 and 2007, the three US stock market crashes all occurred in the context of the Fed's interest rate hike and liquidity contraction. During the three US stock market crashes, the Federal Reserve raised interest rates by 2 17bp on average. Raising interest rates will inevitably increase the interest cost of enterprises and reduce the share repurchase of enterprises, thus putting pressure on earnings per share.

The current US stock market is the eighth year of the bull market. Compared with the previous three stock market crashes, it is more similar to the bull market before 1987. The liquidity premium has been declining for a long time, but it is facing a reversal. The increase in the proportion of passive investment has led to an increase in the valuation of heavyweights. In the past three times, the Federal Reserve kept raising interest rates before the US stock market crashed, and the interest rate of 10-year US bonds rose by 150 basis points on average.

Based on this historical experience, the tail risk of the bursting of the valuation bubble in the US stock market rose sharply after the US debt 10-year interest rate rose 120- 170bp in this interest rate hike cycle.

Table 2: Statistics of interest rate changes in previous interest rate hikes

Source: WIND, TF Securities Institute.

2. The external liquidity environment of US stocks is changing.

The attitude of overseas funds towards US debt will also affect the trend of US stocks. The yield of 10-year US Treasury bonds is higher than S&P dividend, which means that for investors who pursue cash income (debt interest or dividend), low-risk bonds are more attractive than dividends of high-risk stocks, and funds will flow from stocks to bond positions. From the perspective of capital flow, overseas funds stopped buying American bonds in 15. From the end of 10, bond interest exceeded dividends for three months, and S&P also went down all the way, falling sharply in 16.

20 17 September, the Federal Reserve reduced its balance sheet, and the assets it no longer purchased were mainly 10-year US bonds. Compared with June, 15, emerging market stocks, developed European and emerging market bond markets will continue to divert funds originally flowing to the US bond market. One week after the tax reform was passed (12.18-12.22), the largest weekly net outflow occurred in the US stock market since August 20 14, reaching17.8 billion US dollars, and the US stock bond market outflow was 4.42 billion US dollars.

Figure 16: 10-year treasury bond interest rate and dividend yield

Source: WIND, TF Securities Institute.

3. Leading indicators peaked

In August last year, US stocks and high-yield bonds both retreated. Standard & Poor's continued to rise after a small retracement, while high-yield bonds (HYG) peaked and then fell back. In late June, 10, high-yield bonds collapsed, the spread of high-yield bonds widened, and the maturity curve of US bonds further flattened.

Figure 17: The US stock market crashed four months after the peak of high-yield bonds.

Source: Bloomberg TF Securities Research Institute.

Robots occupy the whole reception desk.

Minsky believes that the long-term stability of the market will encourage investors to take more risks, and too many risks will inevitably bring instability. When these high-risk positions are finally closed, it may lead to a sudden tragic decline in the market.

If we put a similar situation today, we can say that the current extremely low volatility and risk premium have no predictive effect on future risks, because the risk control indicator VAR widely used by major funds today is based on retrospective data rather than forward-looking careful thinking. Perhaps active investment can also include some subjective assessment of risks. However, passive ETF, SmartBeta and active quantification based on a series of indicators such as volatility are popular, and robots have occupied the whole reception. The negative feedback mechanism of ETF and VAR will be the same as the programmatic trading in that year. When the music stops, they will trample on each other in the process of squeezing to the exit.

Figure 18: Standard & Poor's 500 VIX Index

Source: WIND, TF Securities Institute.

5. Low cash position of institutional investors

Monetary fund assets only account for 20% of the fund industry, hitting a new low of nearly 30 years. A large amount of funds poured into stock mutual funds, and their cash positions accounted for less than 4%. A survey of all institutional investors in June last year showed that the overall cash position was only 2.25%. Low cash positions mean that the funds that can flow into the stock market in the future are almost exhausted.

Figure 19: The proportion of cash and money fund assets of mutual funds in the fund industry is low.

Source: Bloomberg TF Securities Research Institute.

Figure 20: Proportion of cash held by institutional investors

Source: Bloomberg TF Securities Research Institute.

The proportion of leveraged investors has increased. The figure below shows the positions of US stock futures asset management and leveraged funds as counted by CFTC. Since last year, the purchase of stock futures has increased steadily. In the past two years, these positions have grown steadily and rapidly, with an average annual increase of about $50 billion.

Figure 2 1: CFTC data: stock index futures of leveraged funds and asset management companies (including Standard & Poor's; Dow Jones, Nasdaq) positions

Source: Bloomberg CFTC, JPMorgan Chase, TF Securities Research Institute.

6. The American stock market is becoming more and more sensitive.

Figure 23: Low volatility cannot hide the fact that US stocks are emotionally sensitive. The impact of exceeding expectations on the stock price is only 0/3 of the five-year average of 65438+.

Source: TF Securities Research Institute FactSet.

Judging from the reaction of Q3 US stock price to performance exceeding expectations, the positive price jumped by only 0.4%, which is the five-year average of 1/3. Investors' expectations for the performance of US stocks have basically been integrated into the current high valuation, so there is limited room for growth, and the reversal of performance is likely to cause a sharp decline in US stocks ~