U.S. Stock：The “reversal economy sensitive market” is becoming increasingly visible

■　It is considered premature to raise expectations of a shift to "financial market".

 The market environment for U.S. equities is shifting from a "reversal financial market" to a "reversal economy sensitive market". So far, the severe decline in stock prices can be explained by a shift to "reversal financial market" developments triggered by the declining share price yield (PER). As the economic outlook has become more uncertain, downward pressure on share prices has been increasing due to the downward revision of forecasted earnings per share (EPS). Against this backdrop, the U.S. Federal Reserve Board (FRB) hinted at the Federal Open Market Committee (FOMC) meetings on November 1 and 2 that the pace of rate hikes would slow and that the terminal rate, the ultimate point at which the policy rate is reached, would move upward. The market seems to be starting to realize the transition to a "reversal economy sensitive market" with a view to ending the rate hike phase. At this stage, it is more likely that stock prices will continue to fall, but expected P/E ratios are unlikely to fall as people realize that the monetary tightening phase is over and the main reason for stock price declines will shift to lower expected earnings per share as the economic downturn gains momentum. The S&P 500's forecast EPS growth for 2023 has been slashed from about 10% earlier this year to about 4% currently, and the "reversal economy sensitive market" is emerging in stronger form. If fears of a deepening recession intensify, forecasted earnings per share could depreciate rapidly and further stock price declines should be prevented.

 In a press conference following the November FOMC meeting, Fed Chairman Jerome Powell identified a monetary tightening program consisting of three pillars: the pace of rate hikes, the level of the terminal interest rate, and the length of time interest rates will remain unchanged after the hike ends. The market reacted by interpreting the expected slowdown in the pace of rate hikes as a shift to an accommodative monetary stance, the so-called pivot, but this reaction was too hasty, while the other two pillars remained in good shape. It is still too early to raise expectations of a shift to "financial markets" and a stock market rally is unlikely to last long in such a bear market. An economic environment that would justify a Fed rate cut, namely high inflation and tight labor supply and demand, has yet to be resolved.