A turbulent week! Oil prices and economic data rise together, will the US stock market bid farewell to "unilateral upward trend"?

The previously steadily rising US stock market experienced severe volatility this week.

On Monday and Tuesday, both stocks and bonds saw the most synchronized plunge of the year. However, by Thursday, the S&P 500 index rebounded significantly, marking the largest reversal since August last year, with the rebound continuing into Friday.

In addition, ETF funds tracking long-term US Treasury bonds had their worst week since October last year, with the 10-year bond yield reaching the highest level in four months.

Some analysts believe that the cause of the market volatility is not recession concerns, but rather strong employment market and factory output data, as well as surging oil prices, which raise doubts about whether the Fed will have room to cut interest rates in the near future.

For investors bullish on the market, they are increasingly focusing on the market's impact on the economy itself. Torsten Slok, an economist at Apollo Global Management, stated, "Due to the loose financial environment largely offsetting the effects of last year's rate hikes, the economy is accelerating again and must maintain a high level of interest rates." Slok predicted as early as March that there would be no rate cuts this year.

Since October last year, the broad rebound across asset classes has brought $13 trillion in wealth growth to financial markets. However, in the context of resurfacing inflation concerns, this rebound appeared more fragile this week, especially with Brent crude oil prices surpassing $90 per barrel. Furthermore, following unexpected manufacturing expansion data, yesterday's strong employment data once again triggered a repricing of hawkish policies in the bond market. Traders are now pushing back expectations for the Fed to start cutting rates to September, rather than the previously predicted June or July.

Subtle Shift in Investor Behavior

Investor behavior in the stock market also showed subtle changes. On Thursday, when the S&P 500 index erased all gains and closed down over 1%, the VIX fear index surged to its highest level since November last year, signaling a shift in traders' strategies from buying on dips and actively purchasing call options in the past few months.

Raphael Thuin, Head of Capital Markets Strategy at Tikehau Capital, said, "Clearly, the market is uneasy about the Fed's next move. The stable market that investors crave is unlikely to become a reality."

Is the US stock market bidding farewell to "unilateral rise"?

As high-risk assets ranging from cryptocurrencies to meme stocks have generally seen gains, contrarian investors believe that a comprehensive retreat is imminent.

Citigroup's Levkovich Index indicates that, considering a wide range of data from retail sentiment to options trading and fund allocations, market sentiment has recently entered a frenzy zone for the first time in over two years.

While heightened sentiment alone is not enough to trigger a stock market reversal, as long positions become increasingly crowded, unstable investors may soon exit. For example, data shows that hedge funds have increased their bearish bets on individual stocks, with short selling seeing the fastest growth in the past six months.

Of note, policymakers including Federal Reserve Chairman Powell have made it clear that they are not in a rush to cut interest rates. Particularly noteworthy is the statement from Minneapolis Fed President Neel Kashkari, who, even though he has no voting rights this year, indicated that rate cuts may not be necessary at all this year if inflation remains subdued. Dallas Fed President Lorie Logan suggested on Friday that it is too early to discuss rate cuts given the recent high inflation data