Last week (7/10-7/14), global markets rallied, with the Hang Seng Index showing the best performance, rising by 5.7%. In the US market, the S&P 500 index increased by 2.4%, the Dow Jones Industrial Average rose by 2.3%, and the Nasdaq 100 index gained 3.5%. In European stocks, the STOXX 600 index rose by 2.9%. 【Source: MacroMicro Date2023/7/10-2023/7/14】 【Source: MacroMicro Date2023/1/1-2023/7/14】
On July 12th, the US Bureau of Labor Statistics released data showing that the US Consumer Price Index (CPI) rose by 3% year-on-year in June, the lowest since March 2021, slightly below the expected 3.1%. The core CPI, which excludes volatile food and energy prices, fell by 0.5 percentage points to 4.8% year-on-year in June, below the expected 5.0%. The month-on-month core CPI increased by 0.2%, also lower than expectations. 【Source：MacroMicro 】 Following the data release, market expectations for "the last rate hike in July" became firmer, while expectations for rate hikes after July cooled down overall, with rate cut expectations being brought forward to March next year. 【Source：CME】 However, one key reason for the slowdown in CPI this time is the base effect, and the market may currently be overly optimistic. Michael Hartnett, a strategist at Bank of America, believes that the good times brought by the low base effect are already behind us, and the US may experience higher inflation data and corresponding tightening policies in the second half of the year, with the stock market expected to decline significantly in late August or early September. Goldman Sachs analysts also indicate that the risk of an economic downturn in the US remains high, and inflation could become more challenging starting from now, unexpectedly pushing the central bank towards a hawkish stance. Mitrade Analyst： It is premature to say that July will be the last interest rate hike. From the demand side, non-manufacturing PMI rebounded, non-farm wages remain strong, and the wealth effect from the stock market cannot be underestimated, indicating resilient consumer spending. Pay attention to the next two core CPI growth figures: if they continue to slow down, it is unlikely that the Fed will raise rates twice this year. However, if core CPI rebounds again, the probability of a second rate hike within the year (such as in November) increases.
This Wednesday, Tesla and Netflix will release their financial reports, marking the beginning of the earnings season for tech giants. According to Goldman Sachs analyst Mark Delaney, the market is primarily interested in Tesla's margin performance to assess the impact of the electric vehicle price war on the company's earnings. Additionally, Netflix's stock has risen over 50% this year, and investors hope to evaluate its performance to determine if its high price-to-earnings ratio is justified. 【Source：TradingView】 Next week, companies like Microsoft and Meta will also release their financial reports, and investors are closely monitoring these tech firms' advancements in AI. Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management, stated that while the valuations of mega-cap stocks are "largely priced in," it does not mean they are overvalued. He emphasized that considering trends like artificial intelligence, these stocks have transitioned from being core holdings to becoming almost essential components of investment portfolios. Mitrade Analyst： The market P/E ratio for tech giants is approximately 40 times, while other constituents of the S&P 500 index have a P/E ratio of around 15 times. The giants need to deliver strong performance to justify the high premium the market has given them; otherwise, stock prices may experience a pullback. In the short term, the S&P 500 index is expected to undergo range-bound volatility around the 4500 level.
On July 24th, the Nasdaq-100 will undergo a "special rebalance" before market open to ensure that the largest few companies (constituting over 4.5% of the index) have a combined weight of less than 40%. It's worth noting that this special rebalance is not the first in the history of the Nasdaq-100 index; similar adjustments were made in December 1998 and May 2011. Year-to-date, the Nasdaq-100 has seen a remarkable increase of 42.28%, significantly outperforming the S&P 500 and the Dow Jones Industrial Average. This impressive growth can be attributed to the top seven weighted stocks: Microsoft, Apple, Google, Nvidia, Amazon, Meta and Tesla. Currently, these stocks account for over 55% of the index, but it is anticipated that their weights will decrease significantly in the future. What impact will this adjustment have on the Nasdaq-100? In the short term, there may be increased volatility in the index, but in the long run, this adjustment is not expected to have a substantial impact. According to estimates by CICC International, the weight adjustments for the top seven stocks could lead to a net outflow of approximately $23.5 billion from passive funds (ETFs tracking the Nasdaq-100). However, considering the high average daily trading volume of these seven stocks, any effects from this adjustment are likely to be absorbed within a few days. Mitrade Analyst： The strong performance of the Nasdaq 100 Index this year has largely been driven by a few leading companies. If we exclude the gains made by these companies, the overall performance of the US stock market this year hasn't been as impressive. This adjustment hasn't fundamentally changed the structure of the Nasdaq 100 Index, so the future trend of the index will continue to depend on the performance of tech giants.
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