US$2 trillion is making strides into U.S. stocks

Previously, due to the increasing number of new cases of the global epidemic and the rampant Delta mutant strains, market risk appetite decreased and risk aversion sentiment surged. The U.S. stock market was sold off and plummeted, and funds poured into safe-haven assets such as U.S. Treasuries.

But soon, this sentiment was reversed. With the announcement of bright numbers in the US earnings season, market risk appetite rebounded, and US stocks rebounded sharply for two consecutive days.

In the short term, if the epidemic does not aggravate suddenly, the impact of the virus has been temporarily digested. At present, the biggest impact on the stock market is the performance of the company's financial report and whether there is new financial support in the future.

The second quarter's financial reporting season is in full swing. As of Wednesday, 73 of the S&P 500 index companies have announced their financial reports, 88% of which exceeded expectations. Analysts predict that the S&P 500 index component companies’ earnings for the April-June quarter are expected to jump 72.9% year-on-year, which is much higher than the 54% forecast at the beginning of the quarter. For now, the outstanding performance of the earnings season has supported the stock market, but this is far from enough.

Since the outbreak of the epidemic last year, the Dow Jones Index fell to 18,213.65 points in March. Since then, it has soared like a rocket to the high of 35091.56 in May this year, an increase of 80%. As of yesterday's close, the Dow Jones closed at 34,798 points, a record high. The point is not very far. Such amazing gains in US stocks are mainly due to the influx of huge amounts of funds into the market.

The Fed’s loose monetary policy opened up the money printing machine model, and the Biden administration passed a large-scale infrastructure plan and started a large-scale coin-spending model. Trillions or even tens of trillions of funds were created. Most of the influx into U.S. stocks is the basis for the record-breaking of U.S. stocks.

However, there is nothing that can only rise and not fall. If there is no new force and new financial support, the US stocks will not go far, and the market has already shown signs of fatigue. So where is the new living water?

The Fed is currently under pressure from inflation. Although some people in the market have begun to expect the Fed to reduce the size of asset purchases in advance, the Fed still maintains the view that “inflation is temporary”. We don’t know how long the Fed can last, but it is certain that the Fed will be It will raise interest rates and shrink the balance sheet, so the Fed can't count on it in the future, so who else can it count on?

According to Keith Lerner, chief market strategist at Truist Advisory Services, cash on the balance sheets of S&P 500 index companies has swelled to a record $1.9 trillion, compared to 1.5 before the pandemic crisis in early 2020. Trillions of dollars.

A large amount of cash gives listed companies the flexibility to take measures to support their stock prices, including facilitating share repurchases, which will increase earnings per share. The company may also increase its dividend, making its stock more attractive to investors as bond yields fall.

Goldman Sachs created a stock basket of companies that return a relatively large amount of cash to shareholders through repurchases or dividends. As of last Thursday, the performance of this stock basket in 2021 was 5% higher than the S&P 500 index. The investment bank’s strategists expect stock repurchases to increase by 35% this year.

According to EPFR data, US companies announced a $350 billion repurchase plan in the second quarter, the largest scale since the second quarter of 2018. So far this year, the scale of repurchase announced by technology and financial stocks has been among the best in all types of stocks. Apple alone increased its stock repurchase authorization by $90 billion in April.