I. Performance of Global Equity Indices (in US dollars)
Data source: Bloomberg, compiled by Tiger Brokers
II. Key Market Themes
i. Earnings reports trigger a continuous decline in big tech; is AI at this moment a pie or a trap?
Last week, Google $谷歌(GOOG)$ and Tesla $特斯拉(TSLA)$ released their Q2 earnings reports on the same day. Tesla's net profit plummeted by 42%, significantly below market expectations. In contrast, Google's performance exceeded market expectations, but its guidance for the second half of the year did not provide any pleasant surprises. Consequently, the tech sector took a nosedive, and the Nasdaq index continued to decline.
As observed in last week's market commentary, "The difficulty of betting on this earnings report is higher, and Google and Tesla will determine the short-term direction of the Nasdaq," which is indeed what happened. Objectively speaking, Google's performance was not bad; the market is more concerned about its high capital expenditure, which does not seem to offer equivalent returns in the short term. In response, the CEO emphasized in a conference call, "The risk of under-investing in AI is far greater than the risk of over-investing."
Current AI investments should not focus solely on short-term returns. In the AI competition, "first movers gain an advantage," and consumers only remember the leaders. For instance, OpenAI was the first to release the groundbreaking ChatGPT. Even though other large models like Gemini and Claude with good performance have emerged, in terms of market focus and popularity, GPT remains far ahead.
We believe that the recent drowback in big tech AI is mainly due to the release of market sentiment. The fundamentals for the long-term upward trend have not changed, and we await the market's return to profit-driven trading. This week, tech giants like Microsoft $微软(MSFT)$ , Apple $苹果(AAPL)$ , and Amazon $亚马逊(AMZN)$ will release their earnings reports, providing a good window for sentiment release, which may lead to a shift in market sentiment.
Data source: Bloomberg, compiled by Tiger Brokers
ii. The US Q2 GDP greatly exceeded expectations, and recession concerns have weakened. How long can the market remain excited?
Recently, the US second-quarter GDP was announced, growing by 2.8%, significantly higher than the market's expected 2.1%. The increase was broad-based, with both consumption and investment contributing to the growth. Durable goods consumption surged by 2.5%, much higher than the previous -2.3%. Such robust economic data have completely dispelled previous market concerns about an economic downturn.
At the same time, the US PCE inflation data were also released. The core PCE rose by 0.2% month-on-month in June and by 2.6% year-on-year, both unexpectedly higher than market expectations. Interestingly, the market did not trade on an inflation scenario this time, and expectations for interest rate cuts did not weaken as a result. This directly confirms our previous judgment, "Compared to inflation, the Federal Reserve currently places more emphasis on the economy and employment." This week's FOMC Powell's speech may give an early indication of the following day's non-farm situation.
Citi Economic Surprise Index, Data source: Bloomberg, compiled by Tiger Brokers
We believe that the strength of the economy will dominate the direction of the US stock market for the next six months or even a year. For the Federal Reserve, the most critical issue is how to accurately predict the turning point of the economy in advance. Once the economy undergoes a substantial weakening, corporate earnings, labor wages, and consumer spending will form a spiraling decline, and it will be too late to take action. But no matter what, this GDP data is too strong, and the market may welcome a widespread bullish trend in the short term.
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