Last week (8/21-8/25), the performance of the US stock market was mixed, with the Dow Jones Industrial Average falling by 0.45%, the S&P 500 Index rising by 0.82%, and the Nasdaq 100 Index increasing by 1.68%. European stocks saw a general increase, with the European STOXX 600 Index rising by 0.66%.
【Source: MacroMicro；Date2023/8/21-2023/8/25】
【Source: MacroMicro；Date2023/1/1-2023/8/25】
On August 25th, Federal Reserve Chairman Powell delivered a speech at the Jackson Hole Symposium, stating that if appropriate, the Fed is prepared to continue raising interest rates and maintain them at high levels. He warned that inflation remains too high and there is still a long way to go, with the 2% inflation target unchanged.
Powell hinted that controlling inflation may require sacrificing the economy and job market, but GDP growth has exceeded expectations this year and there is still excessive demand in the labor market. These signals could lead to higher potential inflation pressures and tighter monetary policy.
Overall, Powell's speech leaned toward a hawkish stance. According to the CME Group's FedWatch Tool, market expectations for another rate hike within the year have risen again, with a 47.9% probability of a 25 basis point hike in November, an increase of 15% from the previous week. However, the probability of no rate hike in September remains high at 80.5%.
【Source：CME】
Following Powell's speech, U.S. stocks initially declined but later recovered and turned positive. The two-year Treasury yield rose, hitting a daily high near 5.10%, while the 10-year Treasury yield also surpassed 4.28% to reach a new daily high.
Mitrade Analyst：
The continuous rise in US Treasury yields reflects at least one more interest rate hike expected within the year. Attention is focused on this week's July PCE inflation data and August non-farm payroll figures. If the data exceeds expectations, it will increase the probability of a September interest rate hike by the Federal Reserve, thereby causing a decline in US stocks.
Following Moody's downgrade of the credit ratings of 10 small and mid-sized US banks earlier this month, Standard & Poor's also downgraded several regional banks in the United States on August 22.
The US banking industry, particularly small and mid-sized banks, is facing challenges such as deposit outflows, rising costs, asset-liability management risks, and exposure to commercial real estate. While the Federal Reserve has introduced liquidity tools, including the BTFP, to ease the pressure on banks, the situation has not fundamentally improved.
Since the rating downgrade in early August, US bank stocks have been consistently declining. Over the past month, the KBW Bank Index has fallen by over 10%, and the year-to-date decline has reached 21.1%. From a stock performance perspective, the US banking industry has yet to recover from the banking crisis in March.
【Source：TradingView；The Performance of KBW Bank Index (BKX)】
Strategists at Wealth Bank state that as concerns about the stability of the US banking industry and increasing debt levels continue to grow, the rise in delinquency rates is putting greater pressure on small and mid-sized banks. The current increase in delinquent payments on US credit cards could be a warning signal of an impending difficult period for the US economy.
Mitrade Analyst：
From the downgrade of the USA's credit rating by Fitch to the successive downgrades of American banks' ratings by Moody's and Standard & Poor's, it is evident that financial risks are accumulating as the Federal Reserve continues to raise interest rates. To address the fundamental issues facing banks, the ultimate solution lies in hoping for a rate cut by the Federal Reserve. However, with US inflation still below the target level, the situation of "higher and longer" interest rates is difficult to change. Therefore, we must remain vigilant against the recurrence of a banking crisis scenario like that of March.
After the market closed on August 23rd, Nvidia announced financial results that far exceeded expectations. The report revealed that Nvidia's second-quarter revenue was $13.507 billion, a year-on-year increase of 101%. The data center business, fueled by AI chips, saw a doubling in both quarterly and monthly growth, surpassing expectations by nearly 30%.
However, Nvidia's strong financial report did not significantly boost the stock market. On Thursday, Nvidia only gained 0.1%, while the Nasdaq 100 index fell 2.19%. Discussions about whether AI concept stocks still have room for growth are intensifying.
Bullish individuals argue that Nvidia's success confirms the rationality of the future rise of AI and is not a repetition of the tech bubble. There are indications that internet companies like Microsoft are seeking ways to leverage AI technology to advance their own businesses.
On the other hand, bearish individuals believe that, apart from Nvidia, no other tech company has made significant profits from AI so far. As investors realize the underwhelming performance of generative AI and its lack of "killer-level" commercial applications, there may be a possibility of a "massive and painful adjustment" in valuations.
【Source：MacroMicro 】
Mitrade Analyst：
Concerns over the recent increase in US bond yields have overshadowed the enthusiasm surrounding AI, as the rising yields are detrimental to the valuation of tech stocks. With interest rates staying high for an extended period, the boost provided by the AI concept to the US stock market is expected to weaken, leading to a potential period of volatility for tech stocks.
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