After the extreme volatility of the "roller coaster" market, has the US stock market hit bottom?

After two weeks of roller-coaster trading, the US stock market has become increasingly volatile, with the S&P 500 index experiencing its largest decline since September 2022 and its biggest rebound since November 2022.

Nevertheless, traders now only want to know one thing: Has the US stock market bottomed out?

While no one can be certain, the market has finally brought some good news.

According to the latest report from Goldman Sachs, on Thursday, the S&P 500 index rose above the mid-term threshold of 5254 points for CTAs (Commodity Trading Advisors), which means that the $15 billion S&P 500 sell orders currently operated by CTAs will be halved in the next five trading days, significantly reducing the selling pressure in the coming days.

Goldman Sachs also pointed out that the S&P 500 has successfully reclaimed the 100-day moving average of 5310 points and maintained this level at the opening on Thursday, with semiconductor stocks that had previously experienced a sharp decline rebounding by over 6% on Thursday.

Furthermore, corporations, asset management companies, sovereign wealth funds, and hedge funds have been buying high-quality defensive stocks during this week's market decline, even if they have to pay higher prices, with most of the demand continuing to return.

Goldman Sachs concluded that the US stock market has bottomed out, and it is expected that the market will show a trend of volatility but overall upward movement in the future.

The S&P 500 index hit a historical high of nearly 5700 points on July 16, while the VIX index touched 65 on Monday, a situation that has only occurred twice before in the 2008 global financial crisis and 2020.

Despite the current volatility in the US stock market, we do not believe that there is a situation as dire as in 2008 or 2020.

JP Morgan: The worst period may have passed, but there are still downside risks in the US stock market

Compared to Goldman Sachs, JP Morgan has taken a more cautious stance, believing that the decline in the US stock market may be more due to technical selling rather than fundamental factors, such as arbitrage trading reversals.

JP Morgan trader Andrew Tyler pointed out in the latest report that the fundamentals of the US are still solid. Despite market volatility, the soft July ISM manufacturing activity and non-farm reports are not enough to trigger such large-scale price fluctuations. US economic data shows that real GDP growth remains robust, and corporate income and profit growth exceed expectations.

Moreover, market pullbacks are a common phenomenon. Statistics show that a 5% pullback in the US stock market occurs an average of 3 times per year, and a pullback of over 10% occurs approximately once. In the recent pullback, the peak-to-trough fluctuation of the S&P was -9.7%, pulling back 5% in April. Goldman Sachs also pointed out that historically, entering the market during a 5% pullback in the S&P 500 has proven to be a very effective strategy.

While the market has signaled stabilization, JP Morgan notes that there are still some downside risks in the US stock market:

If the Federal Reserve's September interest rate decision disappoints the market, it may lead to a negative reaction in the US stock market.

If the market fails to sustain buying, it may trigger more selling by CTAs, increasing downward pressure on the market.

August and September are usually weaker periods for the market, and election years may prolong this trend due to policy uncertainty.

Market on Close (MOC) trading orders exceeded $7 billion for the second consecutive day on Wednesday, indicating significant market volatility.

Overall, Morgan Stanley believes that the worst period may have passed, and the market may see a slight increase from current levels. However, more evidence is needed to confirm sustained economic growth, with large-cap stocks, defensive sectors, and cyclical sectors worth watching