I. Performance of Global Equity Indices (in US dollars)
Source:Bloomberg,2024/06/17-2024/06/23
II. Key Market Themes
i. Wall Street once again revised upward its target prices for US stocks, with the most significant divergence surprisingly revolving around AI?!
Recently, major Wall Street firms have once again raised their year-end target for the S&P 500. Goldman Sachs, for instance, raised its target from 5200 points to 5600 points, an increase of approximately 8%, with about 2.5% upside from current levels. This adjustment is mainly due to the substantial earnings surpassing previous expectations in large-cap tech stocks.
As of June 13th, Microsoft $微软(MSFT)$ , Nvidia $英伟达(NVDA)$ , Google $谷歌(GOOG)$ , Amazon $亚马逊(AMZN)$ , and Meta $Meta Platforms(META)$ , these five tech giants, contributed to a 60% increase in the S&P 500 this year. Moreover, their Q1 EPS growth of 84% year-on-year far exceeds the market average of 5%. Goldman Sachs expects continued high growth from these "five giants," although the gap is expected to narrow gradually.
Meanwhile, analysts at JPMorgan Chase have provided a completely opposite conclusion, forecasting a 20% decline in the S&P 500 by year-end! The main disagreement lies in whether AI can become a broader driver of growth in the short term. While AI currently lacks a clear profit model, we believe that the trend of technological revolution has already formed. Unless uncontrollable external factors occur, tech giants will continue to invest heavily until results are achieved.
Source：Goldman Sachs Global Investment Research
ii. US May retail sales fall short of expectations, consumer momentum weakens, Powell's hints are coming true!
Recently, the US released its May retail sales data, showing a month-on-month increase of 0.1%, which is below market expectations. Core retail sales, excluding automobiles, gasoline, and building materials, rose by 0.4% month-on-month, also below expectations. The market has begun to question whether the strong US consumer spending can continue.
From the data, on one hand, the US credit delinquency rate (white line in the chart below) is rising significantly. Although it is still far below the levels seen during the 2008 subprime mortgage crisis, it is at a near ten-year high. On the other hand, income growth (blue line in the chart below) is gradually slowing under the pressure of sustained high interest rates, and disposable household income is decreasing.
As we previously analyzed, although Powell repeatedly emphasizes that US consumption and the economy are very strong and that the Federal Reserve can handle any problems, the FOMC had already given the market a heads-up by saying, "Economic data may decline in the future." Currently, this logic has been initially verified, and the release of this week's PCE data may further strengthen this hypothesis. On this path, we still maintain our forecast of 2-3 interest rate cuts this year.
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