I. Performance of Global Equity Indices (in US dollars)
Data source: Bloomberg, compiled by Tiger Brokers
II. Key Market Themes
i. Mid-2024 Wrap-Up: Tech Giants Continue to Lead Globally, How Long Can the AI Narrative Last?
As 2024 June concludes, the US stock market continues last year's trend of "giant companies leading the way." The Nasdaq 100 index $纳斯达克100指数(NDX)$ rose more than 17% in the first half of the year, with the top seven weighted stocks all being AI-related, contributing to over 80% of Nasdaq's total gains. AI leader NVIDIA $英伟达(NVDA)$ saw a nearly 150% increase in the first half. On the other hand, due to high interest rates, small-cap stocks performed modestly, with the Russell 2000 small-cap index rising only 1%.
Overall, we believe that "AI+ interest rate cuts" will remain the main theme for the second half of year 2024. The high costs of training large models currently restrict participation to tech giants. From a profitability perspective, the efficiency of this AI capital investment far exceeds that of cloud computing and the internet in previous years.
From a technological development standpoint, the AI narrative can be divided into four stages: upstream chips and hardware equipment, AI-related infrastructure, applications with stable profit models, and companies that broadly enhance productivity. We believe that we are currently in the transition period between the first and second stages, with funding still focused on hardware equipment and AI cloud providers, far from the end of the trend. For example, the recent rise in Tesla $特斯拉(TSLA)$ and TSM $台积电(TSM)$ stocks tells a similar story.
Data source: Bloomberg, compiled by Tiger Brokers
Data source: Factset, compiled by Tiger Brokers
ii. Significant Cooling in US Economic Employment: Everything Still Under the Fed's Control?
Recently, the US June non-agricultural payroll data was released, showing a total increase of 206,000, slightly exceeding market expectations. However, the data for April and May took a significant dive downwards, bringing down the average monthly increase for Q2 to only 177,000. Looking at the trends, the once-booming job market is starting to cool down.
Breaking down the data, government employment saw a substantial increase of about 70,000, up nearly 45,000 from the previous month. In contrast, the private sector added significantly fewer jobs, down by nearly 60,000 from the previous month. We believe that the private sector more promptly reflects market conditions, and the decrease in its share of new jobs further validates the conclusion that the job market is cooling.
Data source: U.S. Bureau of Labor Statistics, compiled by Tiger Brokers
Meanwhile, the US June Unemployment Rate Rose Again, Reaching 4.1%, Exceeding Market Expectations.
In addition, the June PMI data fell short of expectations across the board, all below the 50-point threshold. All these signs confirm our previous predictions: the Fed has long been aware that economic growth is about to slow down. From the data, the current supply and demand for labor have almost returned to pre-pandemic balance.
Considering Powell's previous statement, "If unexpected employment conditions arise, we will take proactive measures". We believe that both employment and inflation remain within the Fed's expectations and we expect interest rate cuts 2-3 times by the year end, which is the mainstream opinion. The market seems to underestimate the Fed's foresight, and this week's CPI might bring some surprising resutls.
Data source: Bloomberg, compiled by Tiger Brokers
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