I. Performance of Global Equity Indices (in US dollars)
Data source: Bloomberg, compiled by Tiger Brokers
II. Key Market Themes
i. U.S. inflation cools down across the board, benefiting small-cap stocks while big tech are facing pullback risks?
As we anticipated in our previous report, the U.S. June CPI data indeed delivered a "surprise," with figures falling significantly below market expectations. The nominal CPI month-over-month growth was -0.1%, not only well below the expected 0.1%, but also marking the first decline since the pandemic. Consequently, the Fed's rate cut in September is now a certainty.
Interestingly, while inflation has cooled more than expected, big tech saw significant pullbacks, with major U.S. tech giants like Microsoft $微软(MSFT)$ , Apple $苹果(AAPL)$ , and NVIDIA $英伟达(NVDA)$ all experiencing sharp declines on the day. In contrast, the Russell 2000 Index, representing small caps, surged. We believe "AI + rate cuts" will remain as the main theme for the U.S. stock market in the second half of the year. Specifically, AI-driven earnings expectations will boost large-cap stocks, while valuation-driven rate cut expectations will support small caps.
In the first half of the year, frequent delays in rate cut expectations combined with rapid AI development led to a "dancing elephants" phenomenon in the market. Now, with the trend of an unexpectedly weakening economy and rate cuts becoming more apparent, this could further stimulate the valuation of small-cap stocks, creating opportunities for small-cap catch-up growth. Conversely, as AI earnings expectations are almost fully priced in, if future earnings reports fail to meet expectations in a weakening economic environment, big tech might underperform the market. This week, particular attention should be paid to the earnings reports of ASML $阿斯麦(ASML)$ and TSMC $台积电(TSM)$ .
Data source: Bloomberg, compiled by Tiger Brokers
ii. Trump narrowly escapes assassination, presidential election outcome likely settled, market to jump ahead?
On July 13, former U.S. President Trump was attacked by a gunman while giving a speech at a campaign rally in Pennsylvania. He was shot through his right ear, but fortunately, the bullet missed vital areas. The incident shocked the world. Trump's extremely calm and resilient performance during the event not only resulted in a “life photo” worthy of textbooks but also earned him widespread support from the American public. Judging by the approval ratings, Trump has essentially locked in a victory in the upcoming election.
Following the assassination attempt, several prominent capitalists openly expressed their support for Trump. Elon Musk went as far as to call him "Mr. President" and compared him to Roosevelt. We believe that while poll data might be skewed, it’s wise to take note of these influential figures' endorsements. Emotionally, Trump's media company (DJT), Tesla, and Bitcoin, which are directly related, are likely to see a short-term surge in investment.
However, the election trade is still a medium to long-term arrangement. While the Trump incident may provide a short-term market stimulus, long-term trends must be supported by data. For example, Trump's large-scale tax cut plan theoretically could boost U.S. corporate earnings, but the actual impact on businesses and whether it can offset the effects of a weakening economy remain uncertain. Therefore, we believe the event should be monitored, but caution in speculation is advisable.
Data source: Bloomberg, compiled by Tiger Brokers
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