20230821US Macro Strategy Weekly Report(21August-25August 2023)
2023-08-21 17:28uSMART


US Macro Strategy Weekly Report – 21 Aug 2023


James Ooi/ uSMART Market Strategist

Over 13 years of experience in buy-side and sell-side of capital markets

Former Fund Manager of renowned asset management firm
Focus on fundamental analysis and macro-outlook for US & Singapore markets
SGX Academy trainer



This Week’s Market Outlook:

  • This week's important economic indicators in the United States comprise: Existing Home Sales on Tuesday, New Home Sales and PMI Data on Wednesday, Unemployment Claims and Durable Goods on Thursday, and the Jackson Hole Symposium on Friday.
  • This week, companies representing 5% of the total market cap of the S&P 500 index will release their financial reports. Several important financial reports will be published on the following dates:

August 21st (Monday): Zoom

August 22nd (Tuesday): Baidu, Iqiyi, Macy's, Lowe's

August 23rd (Wednesday): Peloton, Grab, Nvidia, Snowflake, Autodesk

August 24th (Thursday): Dollar Tree, Marvell, Affirm, Futu, Intuit, Workday

  • The narrative of "higher rates for longer" has resurfaced. The market's rally year-to-date has been contributed in part by expectations of accommodative monetary policies as It was widely expected that FOMC would commence rate cuts in January 2024, ultimately leading to FOMC rates falling within the range of 3.5-3.75% by the conclusion of 2024 (Figure 1). However, the most recent data from CME FedWatch now indicates that the market foresees the first rate cut occurring during the May 2024 FOMC meeting, with an expected year-end FOMC rate ranging between 4.25-4.5%. While US equity market was partly elevated year-to-date due to lower future discount rate, the higher interest rates now could mean equity market could start to decline in value.


Figure 1: FOMC Meeting Probabilities

Source: CME Fedwatch, 21 Aug 2023


  • We anticipate volatility to keep increasing based on seasonality (Figure 2). If history repeats, the volatility may rise till 12 Oct based on 25-year historical data.


Figure 2:  VIX Seasonal Chart (Past 25 Years)

Source: uSMART, Bloomberg, 21 Aug 2023


  • The data in Figure 3 illustrates years in which the S&P 500 yielded returns exceeding 10% in the first half of the year but performed poorly in the previous year. The average 2nd half performance stands at 12.92%. Historical records indicate that the second half of those years experienced an average drawdown of 6.47%, with 1975 exhibiting the most severe drawdown at 14.1%. If history repeats itself, drawdowns of 6% or 14% could result in the S&P 500 reaching levels of 4,223 or 3,865, respectively (Figure 4). We consider the worst-case scenario to involve a 20% drawdown, potentially pushing the S&P 500 down to the 3,600 level. However, a more prudent investment strategy would involve accumulating positions at drawdown levels of 6%, 14%, and 20%, rather than waiting for a 20% drawdown to occur.


Figure 3:  In the year when the S& 500 returned more than 10% in the first half of this year, it was negative in the prior year (Since 1940)

Source: uSMART, Bloomberg, 22 Jul 2023


Figure 4:  Estimated Max 2H Drawdown

Source: uSMART, Bloomberg, 21 Aug 2023


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