## In-Depth Analysis of U.S. Stock Market Trends: A Multi-Dimensional Framework Investors Must Know

### Why are U.S. stock market trends worth paying attention to?

The performance of the U.S. stock market directly impacts global investment landscapes. Data shows that over the past decade, major U.S. indices have led the world—Nasdaq Composite's cumulative return reached 361.68%, the S&P 500 achieved 228.89%, and the Dow Jones Industrial Average hit 169.89%, far surpassing the Nikkei 225's 158.46%, FTSE 100's 57.76%, and Hang Seng Index's 19.17%. This not only reflects the resilience of the U.S. economy but also indicates that U.S. stocks are home to the world's top companies—from local industry leaders to multinational giants like Nestlé, Sony, and BHP, all listed on NYSE and Nasdaq.

### Understanding the Sentiment Aspect of U.S. Stock Trends

Investors often make the mistake of ignoring market sentiment. Market sentiment frequently determines short-term volatility, while fundamentals drive long-term trends.

**VIX Volatility Index** is a key indicator measuring market panic, commonly called the "Wall Street Fear Index." When VIX is high, it indicates extreme pessimism, which may actually create buying opportunities; conversely, low VIX levels warrant caution.

**CNN Fear & Greed Index** considers market price momentum, put/call ratios, junk bond risk premiums, and market breadth. When the index reaches "extreme greed" levels (like current levels), investors should recognize that risk premiums are insufficient; "extreme fear" often appears at market bottoms, as seen in October 2022 when the S&P 500 hit its yearly low.

**Investors Intelligence Sentiment Report** is based on over a hundred independent market analyses, assessing analyst opinions. When too many analysts share the same stance, it often signals a contrarian signal—highlighting the market's tendency to cause maximum pain to the majority.

### The Fundamental Drivers of U.S. Stock Trends

#### Dual Role of Corporate Earnings and Valuations

Ultimately, U.S. stock trends are determined by companies' profitability. For example, during 2018-2019, U.S. corporate tax reforms led to over 25% profit growth in S&P 500 constituents, laying the groundwork for a bull market.

But earnings are not the only factor. During 2020-2021 pandemic, many companies had unstable profits, yet due to near-zero interest rates and massive government stimulus, investor confidence soared, pushing the S&P 500's P/E ratio from 18x to over 24x—an "valuation expansion" effect. Conversely, after the Fed's rate hikes in 2022, high-growth stocks with elevated valuations were sold off first, with ARK Innovation Fund falling over 50% for the year.

#### Financial Reports as a Company Valuation Indicator

Interpreting financial reports should focus on three aspects:

**Revenue and Profit Trends**: Not only absolute figures but also comparisons with competitors and Wall Street expectations. In Q3 2023 earnings season, tech giants saw their stock prices surge due to cloud revenue beats, while traditional retail struggled amid rising costs and squeezed margins.

**Management Guidance**: Meeting current performance targets but lowering future outlooks can still cause stock declines. The tone and details in management's conference calls often reveal resilience and clarity in strategic direction.

**Macroeconomic Environment**: In high-interest-rate environments, markets focus on free cash flow and debt structure; during economic recovery, growth investments and future returns become more critical.

#### The Dominant Role of Federal Reserve Policies

The popular saying on Wall Street, "Don’t fight the Fed," captures the truth. Fed policies often influence short-term U.S. stock movements more than fundamentals.

From the long bull market from 2009 to 2015, the Fed implemented three rounds of quantitative easing, injecting over $3.5 trillion into the market. Despite moderate economic growth, stocks soared. During the COVID-19 shock in 2020, the Fed expanded its balance sheet by $3 trillion in two months, triggering a V-shaped rebound. Conversely, in Q4 2018, the Fed continued rate hikes and balance sheet reduction, causing the S&P 500 to drop 15% in three months. Historical experience shows that when rate hikes accelerate unexpectedly, market volatility peaks.

### Analyzing Sector Allocation to Understand U.S. Stock Trends

The S&P 500 covers 11 sectors. Economic cycles and unexpected events (like the 2002 Russia-Ukraine war, 2020 pandemic) cause significant sector return disparities, making sector allocation a key decision for investors.

**Information Technology** is the largest sector, highly sensitive to economic performance. Tech stocks are "long-duration" assets, with forward earnings heavily influencing valuations and interest rate sensitivity. This sector exhibits high volatility and substantial returns but requires close valuation monitoring.

**Financials** are cyclical, best bought during early recovery phases after recessions (e.g., post-vaccine rollout, post-lockdowns). The worst entry points are just before recessions, when bad debt risks rise. Although high interest rates generally benefit banks' net interest margins, rapid rate hikes can trigger recession fears, putting financial stocks under pressure. Key stocks include JPMorgan Chase, Citigroup, Morgan Stanley.

**Consumer Discretionary** includes retail, dining, travel, automotive, and real estate development. During economic downturns, consumers cut back on these expenses first. However, individual stock analysis is crucial—McDonald's and other fast-food chains tend to perform steadily during recessions, as consumers seek low-cost options.

**Healthcare** is a "safe haven" sector. Regardless of economic strength or interest rates, healthcare costs are essential, attracting capital inflows. Major risks include government drug price interventions. When market risk appetite rises, capital often flows into high-growth sectors like tech, putting healthcare stocks under pressure. Notable companies include Merck, Eli Lilly, Pfizer.

### The Lessons from History on U.S. Stock Trends

#### Upward Drivers

**Market confidence and earnings growth**: Corporate profitability is fundamental, but market confidence is equally critical.

**Abundant liquidity environment**: Sufficient market liquidity can propel stocks even with moderate economic growth.

**Technological innovation and expectations**: Truly explosive bull markets stem from breakthroughs. During the 1995-2000 internet revolution, less than 20% of the population used the internet, yet future imagination drove the Nasdaq index up over 5 times. The current AI boom is similar; many AI stocks haven't yet turned a profit but already enjoy significant valuation premiums.

#### Downside Risks

**Recession fears**: Stock markets tend to react 6-9 months ahead of actual recessions. In October 2007, stocks peaked before economic data worsened, but earnings expectations had already been revised downward. After recession confirmation, the "Davis Double Dip" occurred—profits declined, P/E ratios compressed, with the S&P 500 earnings dropping 40% in 2008 and P/E ratio falling from 17x to 10x.

**Valuation bubbles bursting**: When stock prices far exceed intrinsic value, risks of correction increase sharply. During the 2000 dot-com bubble, Nasdaq P/E ratio exceeded 100x, and the index fell 65% over two years. During rate hike cycles, high-valuation growth stocks are sold off first.

**Liquidity tightening impacts**: When the Fed tightens policy, market liquidity dries up, pressuring stocks. The faster and more aggressive the rate hikes, the more volatile the market.

### Technical Analysis Framework

Technical indicators and chart patterns help investors grasp short-term momentum and timing of entries/exits.

#### Key Technical Indicators

**Moving Averages(MA)** act like the "average cost line" of a stock. A short-term moving average (20-day) crossing above a long-term moving average (50-day) forms a "golden cross," often signaling a bullish trend. For example, Tesla's golden cross on July 29, 2024, led to over 100% gains within five months. Conversely, a "death cross" occurs when the short-term MA crosses below the long-term MA, indicating a downtrend. Netflix's 20-day MA crossing below 50, 100, and 200-day MAs from late 2021 to early 2022 resulted in a over 70% plunge.

**Relative Strength Index(RSI)** measures whether a stock is overbought or oversold. RSI above 70 suggests overbought conditions (potential correction), while below 30 indicates oversold (possible rebound). Apple’s RSI in early March 2024 dipped below 30 (bottom at 22), then rebounded, gaining over 40% within a year. However, in strong trending markets, RSI can become less reliable—Nvidia during the 2024 AI surge maintained high RSI levels for extended periods due to strong trend momentum.

**Volume Confirmation** is the golden rule of technical analysis: "Price breaks key levels, volume must confirm." When Nvidia broke previous highs in May 2023, volume surged 79% above average, confirming the breakout. In contrast, Amazon's failed breakout in September 2022 was accompanied by declining volume, indicating insufficient buying strength.

### Classic Pattern Recognition

**Head and Shoulders** is a classic reversal pattern. Meta formed a complete head and shoulders from September 2021 to February 2022: left shoulder ($385), head ($352), right shoulder ($336). After breaking the neckline, the stock continued to decline by 25%.

**Cup and Handle** signals a bottoming pattern ready for upward move. Microsoft took ten months (2022-2023) to form a cup and handle; the cup's depth was 32%, and the handle retraced 8%. When volume increased in January 2023, the stock surged 45%. This pattern is common in long-term bottoms of growth stocks.

**Rising Wedge** appears as stock prices reach new highs but with diminishing momentum, with decreasing volatility range. Vanguard Financial ETF(VFH) formed a typical rising wedge from October 2022 to March 2023. Breakouts from this pattern often go against the prior trend, requiring caution.

**Important Reminder**: Relying on a single technical indicator can lead to misjudgment; always combine multiple signals for comprehensive analysis.

### Integrative Framework: From Sentiment to Decision-Making

U.S. stock trend analysis should adopt a multi-dimensional perspective: market sentiment determines short-term extremes; fundamentals (earnings, valuations, policies) influence medium-term trends; technical analysis helps time entries and exits. Investors must closely monitor macroeconomic conditions, sector cycles, company performance, Fed policies, and market sentiment, adjusting strategies flexibly based on the combination of these variables to maintain an advantage in the complex and volatile U.S. stock market.